Why Tragedy Will Be Result of Dems Rush to Victory on Health Reform

Last Saturday, House Speaker Nancy Pelosi begged, cajoled, and threatened health care legislation to a successful vote in her chamber, albeit by a razor thin margin of 220-215. The administration and House leadership touted this as a landmark vote, which it is, but only if you ignore the fact that the bill achieves almost none of President Obama's promised health reform goals. In fact, it is very likely to explode the deficit, drive up health care costs, and inflict massive new taxes on middle-class Americans.

Watching events unfold in Washington at first hand, it’s become clear that health reform has become the Democrats version of "Moby Dick," as party leaders embrace the premise that they must pass something this year and declare victory, no matter how flawed the final product is. Unfortunately, they may sink the economy along the way.

If clearer heads prevailed, Congress would scrap these partisan bills and start over:

Both the House and Senate bills will cost well over $1 trillion over the next ten years. The CBO scores the Senate bill at $829 billion and the House bill at $1.055 trillion, but only because of the most transparent budget gimmicks. The Senate Budget Committee puts the fully-implemented price tag at roughly $2.5 trillion for the first decade – demolishing the president’s promise that reforms would not cost more than $900 billion.

The cost curve for spending gets bent…up. The CBO says spending in both bills rises at 8 percent annually as far as the eye can see and CMS actuary Richard Foster says that national health spending gets worse, not better. So much for the president’s repeated assurances that reform would slow the rate of health care inflation.

New entitlements plus cost growth equals taxes, and debt, debt, debt. The CBO only scores the bills as reducing the deficit because Democrats pretend that Medicare docs will get slashed by over 20 percent in two years. Reality says Congress will borrow about $240 billion for the “doc fix”. Democrats pretend they will cut over $400 billion out of Medicare through more vigorous price controls – cuts that will never live to see the light of day. Get ready for a bubble in health entitlement debt.

What isn’t borrowed in these plans is inflicted on drug companies, diagnostic companies, private health insurance companies, “Cadillac” health plans, and individuals and businesses that don’t buy government mandated coverage. These taxes and fees, roughly 90 percent of which fall on families making under $200,000 a year, must grow even faster (10 percent annually) to keep up with the new spending spree.

Private insurance: expensive or off-limits. Taxes, fees and ill-conceived insurance reforms raise the specter of double-digit premium inflation for the majority of Americans with insurance. Millions will find their policies don’t pass muster with the bill’s insurance czar, driving them to more costly policies. The rest? Fifteen million will be thrust into Medicaid as eligibility rises to 150 percent of poverty.

It’s not too late for moderates and conservatives in Congress to force Nancy Pelosi and Harry Reid to chart a safer, bipartisan course. Here are five fundamental, commonsense reforms that will cost less, improve health care quality, and expand coverage:

1. End the tax exclusion for health care and replace it with a standardized tax credit or tax deduction. Economists from (Obama adviser) Jason Furman to Martin Feldstein know that the tax exemption for employer-provided insurance is regressive (the rich benefit more), arbitrary (why tie insurance to employment?), and drives up health care inflation. End it – the largest tax break in the code – and use the proceeds to expand private insurance.

2. Expand existing state high-risk pools to address pre-existing conditions. Today, 35 states have high risk pools that they use to subsidize coverage for Americans who might go without coverage because they have pre-existing health conditions that make coverage very expensive or unavailable in the individual insurance market. Federal dollars should go to states that embrace model high risk pools offering affordable premiums and disease management plans that help keep beneficiaries in better health.

3. Create real interstate insurance competition through a transparent national market. The president and Congress talk a lot about competition. But forcing consumers to choose among three or four expensive government designed plans – bronze, silver, gold or platinum, stacking the deck in favor of public plans, and hamstringing private insurance isn’t real competition. Could we limit consumers to four choices of cars, computers, or colleges and call it competition? Congress should allow interstate sale of insurance, but mandate transparency and standardized coverage descriptions so that consumers always know what they are buying and can easily compare different coverage options.

4. End waste fraud, and abuse in the Medicare and Medicaid program. Experts estimate that Medicare alone may lose up to $60 billion (about 10 percent of total spending) in fraud annually, but the government spends almost nothing on tracking and uncovering fraudulent schemes in federal health programs. Congress should switch to the best practices models use to detect fraud in the credit card industry by relying on real time algorithms to detect fraud at the point of service and stop it in its tracks.

5. Enact real tort reform that will end lawsuit abuse and reduce defensive medicine. Former DNC chairman Howard Dean admitted his party’s allegiance to the plaintiff’s bar precludes backing tort reform. So the president has acknowledged that lawsuits “may” drive up health care costs – but hasn’t offered any serious solutions. Bipartisan malpractice reforms do exist – from expert health courts to a “safe harbor” for doctors who embrace best practices - that could reduce lawsuit abuse. The CBO estimates that tort reform could save $54 billion over ten years.

Republicans and Democrats agree that health care reform is a critical issue for the nation’s future. But the Democrats have developed deeply flawed, partisan reforms that expand coverage without fixing any of the systems’ underlying problems. Unless they chart a new, bipartisan course soon their rush to declare victory will result in a national tragedy.

Douglas Holtz-Eakin is a former director of the Congressional Budget Office and a fellow at the Manhattan Institute. Paul Howard is the director of the Center for Medical Progress at the Manhattan Institute.