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The Senate Debate Begins

Health Reform Director Nancy-Ann DeParle sets the record straight on health insurance reform and deficits as the Senate debate begins.

The Thanksgiving holiday is over, and attention now turns to the Senate floor debate on its health insurance reform. Today's Washington Post explores one aspect of this debate– and that's what the impact of health reform will be on our deficits and fiscal situation.

There are three things to keep in mind when assessing this issue.

First, according to the non-partisan Congressional Budget Office (CBO), the Senate bill (pdf) – and the House bill (pdf) – will reduce the deficit over the first 10 years, and then substantially reduce it by hundreds of billions of dollars in the second 10 years as well.  That would be up to ¼ percent of GDP. CBO scoring is, by design, conservative, and we should not take their assessment lightly. Contrary to what many thought when this process began, the health reform bills represent the biggest deficit reduction legislation since the 1997 Balanced Budget Act.

Second, we also need to understand the limits of CBO scoring. Some of the most auspicious reforms that health policy experts believe will transform the health care system from one that delivers more care at an increasingly growing price to one that delivers better care are not analyzed by CBO for the fiscal effects. Why? Since they have never been done before ordone in concert with each other, they are hard to assess.  For CBO, past results is an important indicator for future savings.  I know this firsthand, having served as the CMS Administrator when the agency implemented the Balanced Budget Act of 1997 (BBA). The BBA was first estimated to extend the Medicare Trust Fund's solvency through 2017, but by the end of the Clinton Administration, the savings in the BBA were re-estimated and found to have extended the life of the Trust Fund to 2029.

Ironically, while some opponents of reform have tried to dismiss the CBO scores as underestimating the costs of reform, the opposite is almost certainly the case. Indeed, Jon Gabel wrote a New York Times op-ed in August spelling out why both history and logic argue that the CBO almost always underestimates savings in reform of the health care system, and are likely doing so now solely by virtue of their methodology:

"The budget office's cautious methods may have unintended consequences in the current health care reform effort. By underestimating the savings that can come from improved Medicare payment procedures and other cost-control initiatives, the budget office leads Congress to think that politically unpopular cost-cutting initiatives will have, at best, only modest effects."

In addition to historic investments in health information technology, research into what works and what doesn't, and prevention and wellness investments that were included in the Recovery Act, some of the key provisions under consideration in the health reform bills include:

  • Changing the way we pay hospitals, to discourage mistakes and unnecessary and costly readmissions.
  • Creating incentives in the payment system to reward quality of care rather than just the quantity of procedures.
  • Giving physicians incentives to collaborate in the coordination of patient care.
  • Reducing hospital-acquired infections and other avoidable health-center acquired conditions through rigorous reporting and transparency.
  • Imposing a fee on insurance companies offering high-premium plans — which would create a strong incentive for more cost-efficient plans that would help reduce the growth of premiums.
  • Establishing a Medicare commission — which would develop and submit proposals aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries. 

These elements are included in the Senate bill, and they will be deliberated upon and strengthened and modified where necessary over the coming debate.

Third, health reform is necessary, but not sufficient to curing our fiscal problems. The growing cost of health care is the number-one, long-term fiscal challenge we face. If we do nothing, by 2017, 20 percent of GDP will be spent on health care – and eventually it will swamp the federal budget. Fiscally-responsible health insurance reform that does not add a dime to our deficits and that reduces the rate of health care cost growth will help put our nation on a more sustainable, long-term trajectory. In fact, just "bending the curve" – reducing the annually rate of health care cost growth -- by 15 basis points (or .15 percent) is the equivalent of wiping out the entire actuarial deficit in Social Security.

So, it's essential that we get health care costs under control by wringing out the waste in the system. But it is not sufficient to plug the massive deficits built up over the past several years. The President understands that, and that’s why as part of the budget process for next year he has tasked the Office of Management and Budget and his entire economic team with exploring ways to reduce our medium-term deficits.

As the debate gets under way, there will be those who will find fault and raise serious questions; we welcome their considered critiques. But a little perspective is in order; the bill passed by the House and the one being considered in the Senate do more to take health care off its unsustainable course than anything in history. And the critics of these efforts rarely offer any alternatives. One thing is clear: doing nothing is not an option.

Nancy-Ann DeParle is Director of the Office of Health Reform