Reality Bites Health Reform

Abstract

As of this early June writing, our welcomed spring season has turned into something far less celebratory in regard to prospects for a smooth and unfettered transition to reform. Harsh economic and political realities concerning the financing and structure of a viable reform package have emerged. These pressure points threaten to unravel the fragile coalition of consumers, business leaders, providers, insurers, and organized labor that has been touted as the driving force for today's reform and the missing ingredient in prior reform efforts. Despite President Obama's admonition in his February 24 address to the nation that health reform cannot wait, it must not wait, and it will not wait another year and the administration's optimism that a bipartisan reform package will be in place by summer's end, the process of developing a final reform proposal may be a painful and frustrating exercise for all interest groups involved. In anticipation of what may be a contentious reform debate, the events of May provide a useful context for understanding the competing forces that over subsequent months are likely to shape the development of reform legislation or frustrate such efforts. These events have brought into sharp relief the fiscal reality of financing care reform; the reality that a consolidated effort to impose cost containment discipline will be necessary to alleviate reform's financing pressures; the reality that creation of a new public insurance plan will be a key point of contention in a bipartisan reform effort; and the reality that a newly minted media campaign will be waged to win the public's hearts and minds regarding alternative visions of reform. The Reality of Reform Financing The report of the Medicare and Social Security trustees released May 12 provided an unsettling jolt of reality to arguably the most critical reform issue to date: how to finance a comprehensive reform plan that will significantly reduce the number of uninsured Americans. After two years of stable projections regarding the length of time until trust fund insolvency, updated projections in the trustees' report that accounted for the decline in federal revenues during the current recession revealed that the Medicare trust fund will be insufficient to pay all benefits beginning in 2017--two years earlier than predicted by the 2007 and 2008 reports. While the report continued to direct attention to the rising costs of care as a primary challenge to Medicare's fiscal prospects, by implication its findings underscore the dual challenges facing President Obama: obtaining revenues sufficient to finance care reform while at the same time seeking ways to shore up Medicare's financial status (Pear 2009a). Focusing specifically on reform, Leonhardt (2009) has observed that a key financing challenge consists of coming up with a likely $90 billion shortfall in annual revenues necessary to cover the uninsured. This computation is based on the fact that the cost of reform (insuring roughly 50 million people) is projected to be around $120 billion a year, and that Congress is likely to approve only half of the president's original $60 billion annual down payment on reform (since legislators are unlikely to limit high-income families' deductions for charitable giving and other activities). In considering how to fill this $90 billion gap, the Senate Finance Committee sponsored a roundtable on financing care reform, soliciting testimony from an expert panel. While panel members presented somewhat diverse perspectives on financing approaches, ranging from strategies to reform care delivery to specific options for taxation, comments by Jon Gruber provide a cogent summary of the available revenue options. These include use of sin taxes on cigarette smoking, alcohol consumption, and foods with high caloric and sugar content, assessments on providers, limitations of high-income families' itemized tax deductions (noted earlier), and elimination or capping of the tax deduction for employer contributions to insurance. …