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Health Care Reform Can Treat the National Deficit

Christina Romer explains the link between health care reform and the budget deficit at CAP.

 

“Any solution to our long-run budget problem will simply have to include slowing the growth rate of health care costs,” said Christina Romer of the Council of Economic Advisors at a CAP event last Monday on how the government can reduce the national deficit while improving health care coverage.

Romer, who is the chair of the three-member council that gives guidance to the president on economic issues, said last week the Office of Management and Budget reported that the fiscal year 2009 deficit was $1.4 trillion, and that the cumulative deficit is likely to reach $9 trillion over the course of the next decade. Meanwhile, health care costs are rising much faster than gross domestic product and comprise a significant part of household and national spending.

She explained that the government has a “responsibility to make the health care system work better for all Americans and to expand coverage.” But she said reform must be done well. It should be budget neutral—not add to the deficit—over the next decade and improve the budget in the long run.

Romer said that current health care reform bills are on track to do this. The current legislation Congress is considering would reduce wasteful health care spending, improve incentives for coordinated care, and limit the ability of private insurers to charge excessive premiums under Medicare Advantage plans.

As for the cost of these bills, Romer said the Congressional Budget Office reported that the Senate Finance Committee’s version of reform would reduce the deficit by $81 billion over the next decade, and it would generate a surplus in the tenth year and beyond. “ The fact that one version [of health care legislation] is even better than budget neutral shows that fiscally prudent health care reform … is possible,” she said.

Romer also cited research from the Council of Economic Advisors that found expansive insurance coverage would reduce state and local expenditures for uncompensated care such as emergency room visits by people who don’t have insurance. In a survey of 16 states, the CEA found that the states were spending at least $4.2 billion on care for the uninsured every year. They estimated that state and local governments across the country could save approximately $116 billion between 2014 and 2019 if insurance was more accessible and affordable.

Looking beyond the short-run budget improvements, Romer said current proposals contain measures that health economists and medical experts think could reduce the growth of health insurance rates. The Senate Finance Committee bill includes a provision from Senator John Kerry (D-MA) that would tax high-priced insurance plans. The tax would discourage insurance companies from offering high-priced plans that would consume increasing shares of workers’ wages. She said health economists from both sides of the political spectrum believe this is the most important provision for avoiding an explosion of health care costs.

Romer also said President Barack Obama wants to establish an Independent Medicare Advisory Council that would provide Congress with recommendations to save costs and improve care in the Medicare system. She also said a public health insurance option would “serve as a competitive, alternative choice, constraining the ability of insurers to raise premiums, and thus [constrain] the growth rate of costs.”

But cost cuts would not come at the expense of quality care. “We are talking about cutting the fat out of our health care system, not the meat,” Romer said. She explained that in recent health care talks, legislators agreed on how to expand and improve coverage. Current versions of reform legislation would expand Medicaid, provide affordable coverage for small businesses, and prohibit exclusions based on pre-existing conditions.

In addition to keeping people healthier and reducing the deficit, health care reform would increase standards of living over time. “The most fundamental and profound benefit [of reform is] that slowing the growth rate of health care costs would free up resources that could be used to produce other things that society values,” Romer said. If the government spends less on health care, more money would be available to programs such as education and infrastructure.

Romer thought that with health care reform, the United States has an opportunity to slow the growth of health costs and improve care for all Americans. With health care currently adding so much to the national deficit, “dealing with the looming budget deficits through effective health care reform is not simply the best way to go, it is likely the only way.”

For more on this event please see its events page.

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