IN THE NEWS

U.S. Pays $2.5 Trillion for Care Costing $912 Billion

The last time a president tried to overhaul U.S. health care, Americans were spending $912 billion on the system and 40 million were uninsured. Today they’re spending $2.5 trillion and almost 50 million lack coverage.

President Barack Obama’s effort to revamp the system faces resistance from lawmakers of both parties who warn that the more than $1 trillion cost of the plan will break the budget at a time when the government already faces record deficits.

“Despite what President Obama claims, the bill he is promoting today will make health care even more expensive,” House Minority Leader John Boehner said last week when the president visited Boehner’s home state of Ohio.

The experience of the 15 years since Bill Clinton failed to win passage of legislation suggests that the price of inaction may be even higher than the cost of Obama’s plan.

Congress refused to touch the issue for a decade after the collapse of Clinton’s 1994 bid. A similar outcome this year would likely add millions to the ranks of the uninsured, boost costs for businesses and workers, and do nothing about what may be the top threat to the government’s long-term fiscal health, proponents of the plan argue.

“The budgetary implications of doing nothing are continued exponential growth in health-care costs, a steadily increasing health-care share of GNP, an eventual bankruptcy of the Medicare trust fund, and health-care costs becoming a prohibitive share of the federal budget,” Lawrence Summers, head of the National Economic Council, said in an interview.
Soaring Costs

Health-insurance premiums for families have risen 119 percent since 1999, according to the Kaiser Family Foundation, a Menlo Park, California-based policy-research firm. Inflation has risen 28.5 percent over that period, according to the Labor Department.

Premium costs are projected to rise another 9 percent next year, an increase that 42 percent of employers plan to pass on to their workers, according to a report last month by PricewaterhouseCoopers. That’s likely to further squeeze millions of Americans who find themselves in high-deductible insurance plans as wages stagnate because of the recession.

Earnings per hour climbed by a 0.7 percent pace on average over the last three months, the Labor Department said earlier this month, the smallest gain since the agency began keeping records in 1964. Meanwhile, the share of insured workers with at least a $1,000 deductible has almost doubled since 2006 to 18 percent, according to Kaiser.

Wal-Mart Weighs In

For companies, the cost of health care “appears to be borne by the employees in the form of forgone wage increases and by consumers in the form of higher prices,” according to an October 2007 research paper by economists Victor Fuchs and John Shoven of Stanford University.

Some companies say the rising costs are also hurting them.

“Health reform could not be more critical,” Mike Duke, president of Wal-Mart Stores Inc., the nation’s largest private employer, said in a letter last month to Obama. “Reforming health care is necessary not just to improve the health of all Americans, but also to remove the burden that is crushing America’s businesses.”

For Louis Gerstner, former head of International Business Machines Corp., failure to curb medical-care costs will have a devastating, ripple effect.
‘Destructive Impact’

“If we don’t fix the spiraling cost of health care, it will have such a destructive impact on our economy that every sector of the economy will deteriorate,” Gerstner said in an interview last month with Bloomberg Television’s “Conversations with Judy Woodruff.”

Health-care spending will account for 20 percent of U.S. gross domestic product in 2018, or $1 in $5 spent, compared with 16 percent of GDP, $1 of $6 spent, in 2008.

“We’re guaranteed to see Medicare and Medicaid basically break the federal budget,” Obama said in remarks at a White House press conference on June 22.

The figures on U.S. health-care spending come from a report for the Centers for Medicare & Medicaid Services.

The administration’s plan aims to simultaneously expand coverage while cutting costs. It is designed to slow the rate of medical-spending inflation by revamping Medicare-payment policies, determining the most cost-effective ways of treating specific ailments and expanding the use of both electronic medical records and prevention programs.

“That is perhaps the most important single thing we can do to put the nation on a sounder fiscal course,” White House Budget Director Peter Orszag said in an interview.
Budget-Busting Plan?

Not everyone agrees. Some experts say the plan may worsen the budget outlook by putting the government on the hook for billions in new expenses while banking on savings that may never be realized. Former Congressional Budget Office Director Douglas Holtz-Eakin calls much of the anticipated savings “speculative,” saying “there is a whole lot of risk that they’ll just make things worse.”

Douglas Elmendorf, the current head of the budget office, said the legislation he has seen so far in Congress will fail to rein in spending.

Orszag acknowledges it isn’t easy to predict the savings the plan will bring. “But that doesn’t mean they are just theoretical,” he said. “Don’t confuse the lack of precise quantification with a lack of importance.”

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