HOLTZ-EAKIN: Betting the future on it

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By Douglas Holtz-Eakin

COMMENTARY:

President Obama's is just the latest voice in the chorus -- mine included -- calling for the United States to rein in its health care entitlements (especially Medicare, which threatens to grow as large as the entire current federal government) before they drag the economy off a cliff.

These efforts should gain new momentum with the recent announcement that Standard & Poor's may downgrade Britain's sovereign debt rating from its triple-A status, warning countries such as Britain and the United States that they can't run their governments on unlimited amounts of borrowed money.

The danger is that partisan politics will drive the Democrats, who control Congress, to muscle through sweeping coverage expansions, offer yet another unaffordable health care entitlement and push the health care industry into the swamp of Washington bureaucracy and political micromanagement that has mishandled Medicare for decades.

Too many Democrats appear to be unconcerned about another dangerous binge of federal spending, wedded to draconian insurance regulation and committed to a new "public plan" entitlement that would endanger private health insurance, threaten employer-sponsored insurance and diminish the very choices promised to Americans.

Genuinely effective, durable reforms must be bipartisan, fiscally responsible and based on market principles that lead incrementally to universal coverage. Budget hawks in both parties should carefully evaluate new proposals and reject any reforms that do not address overspending, low-value care and cost growth.

Suppose, for example, that the "reform" consisted of a mandate to purchase insurance, thereby achieving "universal" health insurance. Without changes to the growth in health care spending, this insurance would become increasingly expensive and ultimately force families to evade the mandate as a matter of economic necessity.

This also would represent a lost opportunity. Those dollars that were devoted to health care would purchase care that was of no greater overall effectiveness than at present. In particular, Medicare's reliance on fee-for-service payments distorts the entire health care system by fragmenting care. Reform cannot expand Medicare; instead, it must transform it and the entire system to incentivize competition and pay for quality - moving us away from the dysfunctional, expensive system we have today.

Is reform still possible this year? Yes, if Democrats avoid the temptation to overreach and ram through expensive coverage expansions - particularly in reconciliation - such as a Medicare buy-in at younger ages, Medicaid expansions or a new public insurance program that ultimately would fall under their own fiscal weight.

Republicans, for their part, should pursue bipartisan policies that embody the conservative values of economic growth and limited government, including reforms that reduce the bloated and inefficient health care sector and expand private coverage.

The bipartisan case for health reform is airtight: Reams of data show the United States spends too much, gets too little for its money and covers too few Americans. For the first time, key political and industry players are lining up to broker meaningful reform: The insurance industry and Big Pharma are at the table, and Sen. Max Baucus, Montana Democrat and chairman of the critical Senate Finance Committee, has floated a broad list of serious options to finance reform.

Republicans must do - are doing - more than simply obstruct the Democrats. For example, Sens. Richard M. Burr of North Carolina and Tom Coburn of Oklahoma and Reps. Devin Nunes of California and Paul D. Ryan of Wisconsin have offered their own alternative reform plan in the Patients' Choice Act, which, Mr. Baucus says, "meets many of his goals," according to the Wall Street Journal.

Republicans recognize - as does the Democrats' Senate Finance document - that the tax code distorts the private insurance market and that better state regulation of health-insurance markets - through efforts like state-level exchanges - can improve the products families receive. Making insurers compete more vigorously is the best route to making sure every family can choose from a wide range of options such as those available to members of Congress in the Federal Employees Health Benefits Program.

Republicans must go further. They should ensure that insurance companies compete by trying to get new customers and not by rejecting the older and sicker. Efforts to eliminate the incentive to "cherry-pick" younger, healthier applicants include risk-adjusting coverage so companies have a financial incentive to cover patients with chronic illnesses such as diabetes or cancer. States also could be allowed to pool together, spreading the high costs of the sickest and offering their residents more affordable insurance options.

Most important, both sides need to agree that existing "public options" of Medicare and Medicaid are fiscally unsustainable and need reform - including more funding for low-income families to purchase high-quality private coverage - instead of pursuing new public options. If they can, it will be a welcome sign both parties are serious about making reforms work.

For health-reform advocates, this is a real "pinch me" moment. For the first time, it appears that real and effective health care reform - comprehensive in scope, built on a durable, bipartisan political foundation - is possible. The president and his party can reach across the aisle and make bipartisan reform a reality. Or they can tax, borrow and spend us into a future we can't afford.

Douglas Holtz-Eakin was director of the Congressional Budget Office in 2003-05 and is author of the Manhattan Institute report "Forging a New Plan for Health Care: Principles and Priorities for Sustainable Reform."