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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House Passes Paygo Budget Rules: Major Exemptions and a Key Challenge

Yesterday, the U.S. House of Representatives passed H.R. 2920, which would reinstitute a pay-as-you-go requirement of budget neutrality on new tax and spending legislation, by a 265-166 margin. 241 democrats and 24 republicans voted in favor of the legislation while 13 democrats and 153 republicans voted against the bill. In essence, the legislation would require any new expenditures or tax relief be offset by spending reductions and/or tax increases to maintain overall budget neutrality.

Nonetheless, a significant share of the federal budget would be exempt from the legislation. Exemptions would apply to, among other programs or laws, physician payments made by Medicare, provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Jobs and Growth Tax Relief and Reconciliation Act of 2003 via scoring (calculating) adjustments. In other words, should Medicare physician payments rocket, no budgetary offsets would be required. At the same time, renewal of expiring provisions associated with the 2001 and 2003 tax relief measures also would not require offsets.

Arguments can be made to rationalize those and other exemptions. For example, allowing the tax relief provisions to expire altogether might prove too economically disruptive, especially at a time when the economy remains weak.

However, on the Medicare front, the exemption is particularly difficult to justify given the long-term fiscal imbalances associated with that program. In that case, the exemption merely serves to postpone the federal government’s starting to tackle the issue of mandatory spending program reforms necessary to put the nation on a more sustainable fiscal path.

Aside from the above-noted exemptions, the first major test of Congressional budgetary resolve could come in the form of health care reform legislation. To date, the Congressional Budget Office (CBO) has estimated that the major legislation likely to be considered would increase the nation’s budget deficits. That raises the question as to whether Congress will make changes to the legislation necessary to make it budget neutral to begin establishing credibility on the fiscal discipline issue or whether Congress will adopt the legislation, even as it would increase the nation’s budget deficits. Considering the exemption put in place for Medicare physician payments, odds probably favor the latter course, though such a course does not ensure that the health care legislation would be adopted. It only suggests that the legislation probably will not be made budget-neutral.

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