Obama Finds $313 Billion More in Savings to Pay for Health Care Reform

In his latest weekly address to the Nation, U.S. President Barack Obama reaffirmed his commitment to passing health care reform this year. “It would be irresponsible to not act,” the President said. “We can’t keep shifting a growing burden to future generations.” He also announced that his administration is proposing an additional $313 billion in cuts to help offset the $1 trillion plus needed put reforms in place.

With these new cuts, the administration has identified $950 billion in potential savings to fund health reform. The President’s FY 2010 budget calls for a $635 billion down payment on reform. Pundits have forecast that reform will cost approximately $1 trillion to $2 trillion overall. The administration, meanwhile, has pledged to carry out reform in such a way that it is “completely paid for and deficit neutral over the next decade.”

The proposed cuts would hit at some well recognized contributors to soaring health care costs, including subsidies to hospitals for treating the uninsured, Medicare Part D drug prices, imaging services, fraud, waste and abuse. Powerful interest groups, including hospitals, drug companies, and specialist physicians, are likely to oppose the cuts.

In his talk, President Obama emphasized that health care costs are growing at an “unsustainable” rate for families, business, and government. “America spends nearly 50% more per person on health care than any other country,” he said. “Health care premiums have doubled over the last decade, deductibles and out-of-pocket costs have sky-rocketed, and many with pre-existing conditions are denied coverage.” Big businesses are at a disadvantage compared to their foreign competitors because of health costs, and small businesses are struggling to afford any coverage at all for their employees. He added that: “Medicare and Medicaid pose one of the greatest threats to our federal deficit and could leave our children with a mountain of debt they can’t pay.”

This state of affairs is something the President says he “won’t accept.” Some members of Congress, however, are vehemently opposed to specific reforms or concerned about whether the U.S. can afford the necessary upfront costs.

The administration has been working diligently to get its message heard. Director of the U.S. Office of Budget and Management, Peter Orszag’s May 29th blog post pointed out that while it will take ten years for the full cost-savings of health reform to be seen, “Over the longer term the budget situation improves considerably – because health care spending declines and because taxable compensation increases.”

The Democratic Policy Committee recently posted a release that states: “Inherited flaws in our health care system have led to higher health care costs, reduced access to care, and inconsistent quality of care throughout the country.” The release goes on to document some of those flaws and their consequences. For example, the average cost of an employer-based family insurance policy premium in 2008 was $12,680, which is about what a full-time minimum wage job would pay for an entire year’s work. Those who can afford health insurance are looking at steeper and steeper fees: By 2016 the average cost of family employer-sponsored health insurance will top $24,000. That’s an 83 percent increase over 2008 premium levels.

Without addressing skyrocketing costs, President Obama and his supporters say, we cannot fix the economy.

One of the most contentious cost-savings is the proposed elimination of the income-tax exclusion for employer-based health insurance. Arizona Senator John McCain proposed exactly that during his failed presidential campaign. At that time, candidate Obama vigorously opposed the idea. But the economy’s troubles have multiplied since those debates occurred, and President Obama will need to make some concessions if he wants to get real health care reform.

Taxing insurance benefits could raise between $340 billion to $500 billion per year, according to a recent New England Journal of Medicine article by Jonathan Gruber. Moreover, Gruber says that by setting a minimum cap, low-wage earners could be protected from the new tax. Without a tax on health benefits, the government is essentially subsidizing employer-based coverage, Gruber argues. “Scaling back he exclusion would be highly progressive and would have the added benefit in reducing the incentives for overinsurance and excessive health care spending” That, he points out, is a “win-win.”