Universal Health Care Too Expensive to Finance

If Congress has learned anything these past few days, it's that the Congressional Budget Office (CBO) and its scoring system are deciding the fate of health care reform. On Monday and Tuesday, the CBO reportedly priced the Kennedy and Baucus bills at over $1 trillion a piece.

In doing so, it completely upended the spend-more-to-save-more game plan.

CBO Director Douglas Elmendorf explained the premise behind his agency's scoring in a letter to Sens. Gregg (R-NH) and Conrad (D-ND) and on his blog,

[L]arge reductions in spending will not actually be achieved without fundamental changes in the financing and delivery of health care.

He oferred two areas that he believes would reduce federal spending, "payment policies in federal programs" and "the current tax subsidy for health insurance".

In an important reference to proposed efficiency initiatives (comparative effectiveness and health IT, for example), he writes:

Many of the specific changes that might ultimately prove most important cannot be foreseen today and could be developed only over time through experimentation and learning.

So back to the drawing board Congress goes. The political stakes, meanwhile, are rising. So far, health care reform has centered on universal coverage, which no one is disputing. More covered lives addresses both the welfare agenda and the business agenda of an expanded marketplace.

Nevertheless, there's significant political risk in how lawmakers may choose to fund it: higher taxes and pay cuts to providers.

Let's not forget, too, that health care reform will now have to compete with financial market reform for lawmaker and taxpayer attention. This will magnify the economic backdrop, and, in doing so, further diminish the moral argument in the health care debate. As we learned in the 2008 election, it’s financial security that matters most, as well-intended as we might otherwise want to be.

And with the economy muddling along, no one wants to think about how things might look ten years down the road, just how to get things back on track as soon as possible.

If not already, folks will soon frame financing options in terms of cost of capital, and what this means over the next two or three years. Inflation fears and the prospect for higher taxes might be too much for even the most committed reformists on either side of the aisle to stomach.

So, has Mr. Elmendorf effectively quashed health care reform as currently intended? Maybe not, but universal coverage is not the sure thing that it might have been a week ago. There’s still ample opportunity for new attempts. Sen. Conrad’s health-insurance "co-op" might factor into this, and so could modifications to the proposed health care exchange marketplace. Legislative maneuvering, though, is tightening.

The wild card is MedPAC, the Medicare Payment Advisory Commission. As New York Times columnist David Brooks writes:

You can take every thorny issue, throw it to MedPac and consider it solved.

Making MedPAC the “Federal Reserve” of the health care system could well be safest approach to payment reform as the central component of health care reform, inside of a government-first agenda.

The market-based folks will still have to wait for another day, and so might universal coverage.

Disclosure: No Positions