Answering The Obama Budget Critics...

Feb 15, 2011

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This column is a collaboration between KHN and  The New Republic.

Conservatives and Republicans had a lot to say about the budget President Barack Obama released on Monday. None of it was good. The budget doesn't do enough to stabilize federal finances, they said. And it doesn't do enough to slow rising health care costs.

Both criticisms have merit. Even if Obama got everything he wanted in his budget request, the federal government would still be committed to spending far more money than it will collect over the next few decades. And the single biggest reason for that discrepancy would be rising health care costs.

But for all of those critics out there, furious that Obama hasn't proposed a more fiscally responsible budget, I have a question: Do you have an alternative? More specifically, do you have an alternative that would both slow federal health care spending and be politically viable? The answer, I think, is no.

Broadly speaking, conservatives and Republicans have proposed three approaches to health care. The first is the one that's gotten so much attention much lately: Repealing the health law. Intuitively, it sounds appealing. The Affordable Care Act would expand government programs in order to make sure more people have comprehensive health insurance. Getting rid of it is bound to save the taxpayers money, right?

Not exactly. The health law does more than simply create or expand government programs. It cuts wasteful spending, such as subsidies to private insurance companies. It also raises some taxes. Put it all together and, according to the Congressional Budget Office, the program actually generates more money than it would spend. Repeal it and the government's bottom line actually gets a little worse.

The usual conservative retort is that the CBO projections are wrong, in part because lawmakers will never implement the spending cuts or new taxes in the face of inevitable political resistance. But even if you accept that claim -- more on that in a second -- it's hard to see how getting rid of the Affordable Care Act substantially improves the long-term government's financial picture.

Remember, the government's health care costs were out of control before the health reform debate even began. That's why the overhaul starts up so many initiatives that attempt to improve the efficiency of medical care, making it possible to reduce costs without reducing care. Some will work, some won't. But the only way to find out is to try them. If lawmakers repeal the measure, those experiments will stop -- and we'll be right back where we started.

Of course, conservatives and Republicans sometimes vow to repeal "and replace" the health law. That's their second alternative. It generally means enacting a hodge-podge of familiar conservative initiatives, from allowing the purchase of private insurance across state lines to encouraging more use of health savings accounts. (By reducing the cost of care overall, in theory, these measures will also reduce the cost of government health insurance.) Some of these ideas, like malpractice reform, have some merit. But overall, no serious economist believes these steps will, by themselves, substantially slow down health care spending either for the government or for society as a whole. At most, they would make an incremental difference.

That brings us to the third alternative -- the one that, if fully implemented, really could slow down government health care spending. It's the alternative known as "obliterating Medicare." House Budget Chairman Rep Paul Ryan, R- Wis., has famously put forward a version of this plan. In it, younger workers would not get government-provided Medicare when they retire. Instead, they would get vouchers for buying private insurance. The catch is that the value of the vouchers would rise really, really slowly -- too slowly to keep up with medical costs.

That might very well save the federal government money, largely by forcing seniors to pay for more of their own health care bills. And if seniors react by getting less care, costs will come down even more. But this is where political reality intrudes. You can safely assume seniors would scream about those cuts, as well they should. Such huge reductions in the value of their health insurance would likely leave many seniors unable to afford not just frills but even essential care, producing the kind of widespread hardship that, in the 1960s, spurred lawmakers to create Medicare in the first place.

A far better approach to controlling health care costs, both for the government and for society as a whole, would be to do so very carefully: spreading the pain widely, by enacting cuts that affect providers and consumers, employers and workers; using new benefits to mitigate the impact of cuts; and, wherever possible, attempting to reengineer the actual delivery of medical care so that it's possible to spend less without providing less. Not only would that be more politically realistic. It would also spare any one group too much suffering. Not coincidentally, that's basically what the health law does. Doctors and hospitals lose some revenue but get more paying patients. Seniors lose some Medicare Advantage extras but get extra prescription drug coverage. And so on.

The result, if it works, will be a gradual slowing-down of health care costs. Would I like the change to be less gradual? Would I like to know, with more certainty, the cuts will actually work? Sure. But the conservative alternatives don’t offer better guarantees. In fact, the promises they make are far more illusory.

Jonathan Cohn is a senior editor at The New Republic .