What Have You Done For Me Lately? Health Care Reform and Deficit Reduction

By Blake Holt, staff editor My colleague Matt is right that the key to bringing the deficit under control is reducing entitlement spending. But while Social Security has problems that need to be addressed, it is not a driver of our growing deficit over time. Indeed, under current law the Social Security Trust Fund will last until 2037, after which “tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084”. Let’s look at the projected growth of Social Security vs. the projected growth of Medicare and Medicaid under current law:

Source: CBO, 2010

In short, there is no looming crisis in Social Security spending. Controlling the skyrocketing costs of Medicare and Medicare is clearly where legislative action must be taken if the budget is to be balanced. What I find strange is the refrain that Rep. Ryan’s “Path to Prosperity” budget plan finally touches the “third rail” of entitlement reform, which had, presumably, been left untouched since President Obama took office in 2009.

The idea that health care costs have yet to be addressed displays an odd amnesia concerning one of the most vociferous political debates of the past few years—the passage of health care reform. Much of the passionate opposition to the legislation—seen at townhall meetings and Tea Party protests across the country—was based on the $500 million in Medicare savings (i.e., reduced spending) that the Affordable Care Act (ACA) enacted. Democrats paid a hefty political price at the polls in November 2010 in part because of these proposed changes to Medicare.

Among the provisions in the ACA that aim to bring down health care costs are the establishment of Accountable Care Organizations to coordinate care, payments moving toward quality of care rather than quantity of visits, and an Independent Payment Advisory Board that has the power to institute cost-controls in the event that Congress fails to. The Office of the Actuary for Medicare predict that the ACA will bend the curve of health care costs growth down over previous law, as seen here:

Annual Growth Rates In National Health Expenditures (NHE) Under Current Law (September 2010 Projections) Versus Prior Law (February 2010 Projections), Calendar Years 2009–2019

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

Critics may argue that the cost savings in ACA will not work as intended. And they may be right! Congress may indeed choose not to follow up on the cost controls it enacted with the passage of ACA. But shouldn’t those critics be pressuring current and future legislators to strengthen the cost control mechanisms of the ACA rather than repeal them along with the rest of the law? The savings efforts in the ACA at least attempt to address the problem and to argue that Obama has thus far failed to offer solutions to control the largest driver of our long-term deficit is inaccurate.

This is not to say, of course, that the possible health care savings in the ACA are the end of the effort to bring down the debt through controlling health care costs. More innovation is needed. Continual pressure on Congress to press for health care efficiency is essential. Attempting to lower Medicare payments to doctors while maintaining access to care for seniors is a challenge. And none of this even addresses the need for us as a nation to be more honest about the eventual necessity to raise taxes on the non-rich if we want to fully pay for our obligations.

It is only the beginning of a process that will require further changes and hard choices in the future. But debating what path we should take moving forward at least requires an acknowledgement of what has been done so far.

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