In the Nation's Interest

Don’t Count on Congress to Control Health Costs

The Obama administration, faced with a major economic recession and financial crisis along with a collection of international crises, has outsourced health care reform to the Congress. But that carries risks: While Congress specializes in writing legislation, it's not particularly good at developing complicated policy, which is what the executive branch is supposed to do.

My prediction: The "debate" will continue largely in secret until incredibly complicated legislation is sprung on the public-and then some creative use of congressional rules, like budget reconciliation, will have to be used to get it passed. Five years from now, we'll discover that health reform isn't controlling costs.

Or, put another way, "If you want it bad, you get it bad."

We've been on a societal spending binge for the last generation. Today, because of the extraordinary recession, the economic stimulus package and the various bailouts, the federal budget deficit is headed north of 8% of the gross domestic product this year. Adding a few percentage points more to the gap-for health care or anything else-would be a disaster. We cannot put in place a major new health care reform unless it's been prudently paid for.

What is driving our budget and deficits up? Health costs, which gobble up 22.5% of the federal budget, are the single biggest category and the one that's rising the fastest, in part due to growth in Medicare. The 40-year-old health program for the elderly and disabled is essentially a single-payer, government-run plan that doesn't have a clue how to contain costs. This should be a speed bump for even the most ardent advocates of new public options in health care.

More generally, we will spend 17% of GDP on health care this year, a proportion that's increasing as health costs rise more rapidly than our economy. (The number was 12% when Hillary Clinton was trying to change the system 17 years ago.) A study by McKinsey & Company, the consulting firm, found that the U.S. spends about $700 billion annually more on health care than to other wealthy nations, and we get worse results. Policy experts disagree on why.

The blunt fact is that we only "sort of" understand health care costs; we understand even less how to manage them, and are unwilling to do what needs to be done to control them. Given this limited knowledge, we do not understand how a major new program added to the health care sector could affect costs.

Politicians appear to be following a standard playbook: Reluctant to take tough steps, they instead suggest that costs will be contained by ending waste, fraud and abuse or implementing health information systems.

Another problem: Confusion between prices and costs. We can force lower prices-and we have in Medicare for a generation-but this effort, while temporarily satisfying, does nothing about actual costs. Every year we force payments (prices) to doctors down; and every year we have legislation to recognize reality (which is to say, costs) and we raise payments to doctors again.

Curbing costs has to be done in a systemic and orderly way. Existing subsidies, like the tax exclusion for heath benefits, have to be reduced or eliminated. Individuals have to pay more for health care; they simply won't act rationally if they don't have to face real prices. People have to take greater responsibility for their own health, because as much as two-thirds of our health cost growth is due to chronic conditions, many of which are caused or exacerbated by lifestyle choices. And at the end of all of this, we'll still need to raise taxes, and not just on everyone's favorite target, the rich.

A health care system that performs well-and provides better access, encourages improved health, while not destroying the budget--is worth the effort. President Obama has the skills to bring this about. But his efforts have to aim at real, deep, systemic change. They can't just provide air cover for a "camel", a horse designed by a congressional committee, with a lot of hand-waving about costs.

Bo Cutter is the Managing Director of Warburg Pincus and a member of the Committee on Economic Development. He served as an Assistant to the President for economic policy for the Clinton white house, where he worked on health legislation, among other topics.

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