Seniors’ Health Care Bill of Rights Fails to Satisfy Key Criteria for Credible Health Reform

As outlined in previous blog entries, arguably the most important criteria any credible health care reform initiative would need to satisfy are:

• The initiative would need to be budget-neutral.
• The reform would need to materially slow the annual growth in national health care expenditures.
• The legislation would need to provide a mechanism that significantly reduces the number of uninsured persons.

At the conclusion of its Chapter IV Consultations with the United States, the International Monetary Fund (IMF) noted, in part:

Directors underscored that addressing soaring entitlement costs remains the critical medium-term fiscal challenge… [T]he ultimate package should include substantial measures to reduce health care costs over the longer term, while aiming at budget neutrality in the short term. Directors underscored that the impact of cost control measures will need to be carefully monitored, and that additional measures should be taken promptly as needed.

To date, the Congressional Budget Office (CBO) has found that emerging reform proposals are not budget neutral and they do not bring about a material reduction in the rate at which national health care expenditures have been growing.

On August 24, 2009, Republican National Committee Chairman Michael Steele unveiled a “Seniors’ Health Care Bill of Rights” as an alternative to emerging Congressional packages. Accompanying the concept was an op-ed piece published in that day’s edition of The Washington Post. Together, the conceptual outline and op-ed piece offer a sketch of broader alternative health care reform ideas that are beginning to emerge. However, as was the case with the Congressional initiatives, the alternative ideas also fail to meet the criteria set forth at the beginning of this blog entry.

A closer look at the Steele concept relevant to the aforementioned criteria follows:

Budget Neutrality: In the op-ed piece, Steele writes, “We also believe that any health-care reform should be fully paid for, but not funded on the backs of our nation's senior citizens.” The conceptual outline offers no specific spending reductions or tax increases that would finance health care reform. Consistent with Republican Party principles, tax hikes are likely to be off the table. Therefore, implicit in the concept is the possibility that all spending reductions for health care reform would need to be taken from discretionary spending or that health care reform would have to be shelved altogether.

The former possibility is unlikely to fully finance health care reform that dramatically reduces the incidence of insured persons. As the Steele concept leaves Medicare on auto-pilot and rules out benefit reductions, the rising costs of Medicare could devour an increasing share of discretionary spending, leaving little or nothing for financing any sustainable health care reform initiative. Furthermore, political consensus to achieve increasingly deep discretionary spending cuts is highly unlikely over the longer-term, even as the magnitude of necessary discretionary budget reductions under the Steele approach would grow. Yet, even if health care reform is canceled, the need for health care reform, particularly as the incidence of uninsured persons persists and excess rise in national health care expenditures continues, would grow more urgent.

Slowing the Excess Rise in National Health Care Expenditures: The concept would rule out cuts in Medicare spending. No mention is made about slowing the growth of Medicare spending either. In contrast, even as the Clinton Administration and Republican-led Congress struggled over Medicare reform during the mid-1990s, both sides were in agreement that the rate at which Medicare spending was growing needed to be slowed. Behind the rise in Medicare spending is the slowly shifting demographic mix and health care inflation. Unless health care inflation is tamed—and increasing health industry productivity and focusing on rising hospital-related costs, which have been the principal driver of medical cost inflation could be essential to that task—Medicare expenditures will continue to increase faster than the economy grows. In the long-run, that is a fiscally unsustainable situation.

Significant Reduction in the Incidence of Uninsured Persons: The concept unveiled by Steele is intended to be a starting point for health care reform. It does not address the measures or mechanisms that would be offered to reduce the incidence of uninsured persons.

In sum, even as Steele asserts, “Republicans want reform that should, first, do no harm,” a failure to address Medicare’s long-term fiscal imbalances, which depends in large part on slowing the annual growth in national health expenditures, will inflict growing damage to the nation’s long-term fiscal outlook. Already, the perpetual horizon unfunded liability associated with Medicare amounts to $85.6 trillion. According to Dallas Federal Reserve President Richard Fisher, 97% of discretionary spending, which includes national defense and education spending, would need to be eliminated to finance the nation’s long-term fiscal imbalances associated with Social Security and Medicare. No such stark decision would be politically-feasible. Hence, far from doing “no harm,” a failure to grapple with the fundamental issue of rising health expenditures, which all but certainly will require a mix of revenue increases and benefit reductions, would do great harm.

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