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Health Care Identified As Biggest U.S. Fiscal Challenge

With poll numbers showing growing public dismay over the largest budget deficit in history, the president, last February, called for a bi-partisan commission to propose a path back to a balanced budget.  The result, released last week, was a deficit reduction plan that didn’t meet the approval of its own committee members.  However, the commission served a greater purpose.  Finally, someone started a serious public discussion on the deficit, our biggest national problem.

For the last 10 years, our government has spent record amounts of money it didn’t have on foreign engagements, entitlement programs, and over-the-top economic stimulus programs.  All this was done in the face of the forecasted coming financial meltdown of the Medicare and Social Security programs.  Serious considerations of solving these problems were politicized and trumpeted as being heartless, unthinking, or, worse, unnecessary.  Then, on February 1, President Obama announced a record $1.56 trillion budget deficit for 2010.  Incredibly, instead of dealing with the problem, Congress, in March,  passed a sweeping health reform bill, the Patient Protection and Affordable Care Act, (PPACA) that, according to a recent report from the Office of the Actuary for Medical and Medicaid Services, will add another $88.8 billion a year to the deficit by 2019.

The deficit-reduction report is the first “official” honest response to this serious problem.  In the first paragraph of their document, which the commission pointedly titled “The Moment of Truth”,  they warn that we cannot play games or put off hard choices any longer.  With irrefutable facts, the report points to an unsustainable fiscal future unless certain actions are taken.  To steel our resolve, the commission even cautions us to not allow “heart-wrenching” appeals dissuade us from making tough choices in the face of the disaster that will affect us all if we fail to act.

Of all our expenditures, the commission sees federal health care spending as our single largest long term fiscal problem.  With this in mind, the commission looked primarily at paring down Medicare and Medicaid expenses.  However, I see serious problems with what the commission did and didn’t propose in this area.  But first, here’s some of their good ideas:

-  The commission recognized what most economists believe, but few elected officials admit:   People over-use the health care system, making this a big reason health care costs continue to rise. The reason is that most people don’t pay directly for their health care.  Employer-provided health insurance, Medicare, or Medicaid do that.  As a result, people are unaware of the costs they are incurring and make choices they wouldn’t otherwise make.

-  Despite widespread recognition that bogus medical malpractice suits play a major role in rising health care costs, the PPACA failed to address this problem.  To decrease the number of expensive defensive tests doctors order and the high malpractice insurance they must pay, the commission recommends an aggressive set of reforms to address this failure.

- To keep the health reform bill’s cost estimate low, the PPACA called for a 23% reduction in physician Medicare reimbursement amounts.  This was included assuming that separate legislation would be passed to undo this reduction.  This has been an ongoing budget trick since 2002, but this time, Congress balked and doctors repayments were delayed a month.  As a result, seeing this as a portent of times to come, many doctors made plans to stop accepting new Medicare patients.  The committee recommended this duplicitous budget maneuver be replaced with a new honest physician payment system.

- Another tough but necessary recommended measure was the reform or repeal of the Community Living Assistance (CLASS) Act, another part of the health reform bill.  Although it represents the much desired goal of providing affordable long-term care, the commission found it to be financially unsound.  Removing this not only lowers the budget projection, but prevents a future public service embarrassment.

More examples of concrete proposals to lower health care costs are in the report.  Not all of these are good.  Some proposals are inconsistent or contradictory; and other areas are missing.  We’ll relate these shortcomings in our next posting and, in so doing, participate in this important national conversation about the deficit.

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