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Washington’s governing class barely had time to enjoy Sunday night’s House passage of landmark health legislation when its members awoke to read what should have been sobering news from the morning papers.
Half a world away in Beijing, the International Monetary Fund’s No. 2 official warned the United States and the rest of the world’s wealthiest nations that their surging debt could threaten the global economic recovery. With government debt levels expected to approach or top 100 percent of gross domestic product by the end of 2014 for the United States and four other advanced economies within the Group of Seven, “policymakers should be making clear to their citizens why a return to prudent policies is a necessary condition for sustained economic health,” the IMF’s deputy managing director, John Lipsky, told the China Development Forum.
The juxtaposition of House action on health care and Lipsky’s remarks about skyrocketing debt may have been coincidental, but the issues involved are inextricably linked. Surging health care costs in the form of Medicare and Medicaid are driving America’s long-term deficits and debt and are threatening its economic vitality. Despite what anti-government conservatives like to argue, “entitlement” programs in general are not out of control. But Medicare and Medicaid are surging out of control, a problem that the health care legislation awaiting President Obama’s signature purports to begin addressing. The impact of the legislation in the coming years will help to determine whether the federal government begins to regain control over its fiscal destiny.
The health-deficit nexus is perhaps this bill’s most contentious feature. The Congressional Budget Office says the legislation will reduce federal deficits by about $140 billion over the next 10 years and more in the ensuing decades by raising Medicare payroll taxes for couples earning over $250,000 a year, imposing an excise tax on high-cost insurance plans, cutting federal payments to private insurers who participate in Medicare Advantage, reducing annual payments to a wide range of health care providers (hospitals, skilled nursing facilities, home health agencies, and so on), and taking other steps to make health care delivery more cost-effective, both in Medicare and system-wide. Some experts believe the cost savings could be substantially greater than what CBO was willing to project at this point.
But plenty of people, both in the world of health care policymaking and among the public at large, don’t seem ready to buy it. As one of Washington’s top foreign policy writers said to me over breakfast, “I can’t get my head around the idea that we’re going to provide health insurance for 32 million more Americans and save money in the process.” More substantively, some fiscal watchdog groups are skeptical that future Presidents and Congresses will let the excise tax take effect on schedule in 2018, or let annual payments to providers fall compared to current law, or let a new Independent Medicare Advisory Board make further changes in Medicare, as it will be empowered to do unless the president and Congress override it.
Others express more optimism, saying that major legislation generally includes long phase-in periods for major provisions and that, when it comes to Medicare, Congress over the last two decades has generally allowed scheduled cuts to take effect – conventional wisdom to the contrary notwithstanding.
Here’s hoping the optimists are right, for the stakes are far greater than health care. The issue isn’t whether Congress has found a reasonable way to finance a huge health care expansion. The issue is whether it enacted a series of system-wide and Medicare-specific provisions that will set the federal government on the path to fiscal sanity. If not, the heralded health care expansions in this bill will be more than offset by the economic problems that our soaring debt will begin to generate.
Lawrence J. Haas is former Communications Director to Vice President Gore and, before that, to the White House Office of Management and Budget. He's now a public affairs consultant who writes widely about foreign and domestic affairs, including fiscal policy.