EagleTribune.com, North Andover, MA

September 13, 2009

How to spend a trillion dollars

Who will be paying for health care reform?

By Ken Johnson

Paying for health care reform could be the biggest doctor's bill ever.

Providing insurance for the 47 million uninsured, offering a public insurance option to the range of private plans, and subsidizing premiums for the poor will be enormously expensive — around $1 trillion over the next 10 years.

Yet President Obama insists we can have reform without adding to the federal deficit or raising taxes on most Americans.

"I will not sign a plan that adds one dime to our deficits — either now or in the future," the president said in his address to Congress on Wednesday. "I will not sign it if it adds one dime to the deficit, now or in the future, period."

That has some economists scratching their heads. Even Congress' own financial analysts say it isn't so.

A Congressional Budget Office analysis of H.R. 3200, the main health care reform bill before the House of Representatives, says the reforms would cost $1.2 trillion over 10 years and add $239 billion to the federal deficit.

CBO also looked at a plan formulated by the Senate Health, Education, Labor and Pension (HELP) Committee. A June report indicated that plan would add $1 trillion to the deficit over 10 years — but the CBO cautioned that its analysis was based on incomplete data. The actual deficit impact of the HELP plan would likely be lower.

There has yet been no public CBO analysis of a bipartisan, compromise plan being hashed out by the Senate Finance Committee under its chairman, Max Baucus, D-Montana.

Baucus has said his bill will cost less than $900 billion and reduce the federal deficit. However, the Senate Finance bill abandons the so-called "public option" — a government-run insurance plan to compete with private insurers. Many House Democrats say they will not support a health reform initiative that lacks the public option.

So which plan is President Obama talking about when he says health reform won't add to the deficit?

"He's talking about 'his plan.' He doesn't have a proposal on the table. It doesn't exist," said Robert Moffit, director of the Center for Health Care Studies at the conservative-leaning Heritage Foundation.

President Obama seems to be referring to elements of all three of the major health care reform proposals under consideration in Congress. But, Moffit said, Obama hasn't indicated he's willing to compromise with his Republican opponents as his Democratic predecessor Bill Clinton did to pass welfare reform.

"I think the president hurt himself last night," Moffit said Thursday. "Instead of pulling a Bill Clinton and doing a welfare reform turnaround, basically he drew a line in the sand.

"The president's problems are not with Republicans," Moffit added. "They're with the Democrats — 23 Democrats said they won't vote for the House bill. They don't like what he's selling."

The president has said that as much as two-thirds of the cost of reform — something on the order of $600 billion over 10 years — can be realized by the elimination of waste, fraud and abuse in the health care system.

Surely doctors do order unneeded tests, fearing malpractice lawsuits if they miss something. And health care spending accounts for 15 percent of our gross domestic product. Surely there is some waste and inefficiency involved. But $600 billion worth?

"There are limits to that," said Robert Cuomo, dean of the Girard School of Business at Merrimack College. "We've been at this thing for awhile. It's not the first year we've tried to reduce health care costs. We've taken a lot of the waste out already. You reach a point where you're at bone."

But Chuck Marr, director of federal tax policy for the liberal-leaning Center on Budget and Policy Priorities, says there's plenty of room for health care to be more efficient.

"Clearly there are excessive subsidies in the system that are appropriate targets for reduction," Marr said. "A lot of health care reform is rearranging the subsidies that already exist."

Assuming that level of savings can be achieved, there are a variety of proposals circulating in Washington on how to pay for the remaining one-third of the cost of reform.

Among these are a surtax on high-income individuals, a tax on insurers offering "gold-plated" health insurance plans, and other taxes on insurers and health care providers. There has even been a proposal to tax sugary soft drinks to help pay for reform.

These taxes and fees will have to raise something on the order of $300 billion to $400 billion to pay for the rest of health care reform.

Cuomo says he's worried about their impact on consumers and the economy.

The Baucus plan in the Senate Finance Committee calls for a tax on insurers that offer high-end insurance plans and a fee based on their market share. Together, the tax and fee would raise about $400 million.

Cuomo says insurers will simply pass those costs on to consumers.

"It will make them pay more for insurance," he said. "That's going to defeat the purpose of making it more affordable."

Under consideration in the House is an income tax surcharge on the highest 1.2 percent of earners. The surcharge would raise about $80 billion.

Critics contend that many of those paying taxes in the highest individual income bracket are small business owners. Increasing their taxes would have a detrimental effect on job creation.

But Marr, of the Center on Budget and Policy Priorities, argues in a July 30 paper that the impact would be minimal. Just 23 percent of those who would pay the surcharge get their income from small businesses, he writes.

"At the same time, the House plan would enhance the ability of small businesses to offer affordable, quality health insurance to their employees," Marr wrote.

Cuomo argues that any tax increase in a recession is a mistake, no matter how noble the intent.

"By increasing taxes, they're doing the antithesis of what they should be doing in a difficult economy," he said.

Calculating the cost of health care reform and how to pay for it isn't just a matter of accounting. How each side's numbers crunch, like every other aspect of the debate, depends on one's political viewpoint.