The Importance of Health Care Reform

Health reform is the most important issue we face today. Period. It is, in fact, an existential issue.

I think this not because health care reform will save lives, although it will save somewhere around 20,000 to 30,000 lives a year (based on providing health care coverage to 31 million otherwise uninsured people, source:http://www.urban.org/UploadedPDF/411588_uninsured_dying.pdf and http://www.harvardscience.harvard.edu/medicine-health/articles/new-study-finds-45000-deaths-annually-linked-lack-health-coverage).

No, health care reform is an existential threat to us because health care costs are poised to bankrupt the Nation. Nearly all of the projected expansion of the Federal deficit in future years is caused by growing health care costs as illustrated in this chart which shows Federal spending as a percentage of GDP.

(source: http://www.cbo.gov/ftpdocs/102xx/doc10297/06-25-LTBO.pdf).

If we do nothing, the Medicare HI trust runs out of money around 2017. The Senate bill buys us some time: without finding any additional cost savings it adds 9-10 years of life to the HI trust (source: CBO). That is time we can use to develop cost saving strategies.

This is important not just for Medicare but for all of us. Health care costs are growing to such an extent that they threaten to bankrupt not just the Federal budget, but also the Nation's economy. Medicare is the canary in the coal mine: the problems faced by Medicare are the same problems faced by the rest of the health care system. If we do nothing, Medicare goes down first, but it will be followed by group health and then by the whole system. If we do nothing, employer premiums payments will increase from $430B to $847B per year (a 97% increase), average premium per employee will increasing from $5,900 (11% of median family income) to $11,700 (19% of median family income). As a result,

• Fewer employers will offer group-coverage insurance because of the cost
• Fewer employees will take group-coverage offered because they can not afford it
• More people will be in the market for non-group coverage because fewer employers will offer coverage, but because of higher costs a smaller proportion of those people will purchase that coverage
• More people will enroll in Medicaid and the Children's Health Insurance Program (CHIP) straining government revenues and increasing pressure for higher taxes. Medicaid & CHIP spending will increase from $251B to $458B per year (an 82% increase).

The Senate Bill Is Good Reform

So how can we stop this erosion? The Senate reform bill is a great place to start, and given the polarization and intransigence in Congress I think it is the only option available. The Senate health care reform bill goes a long way towards fixing our health care problems:

• It makes health insurance available to 96% of U.S. residents (under the age of 65)
• It opens Medicaid to many more people
• It makes health insurance more affordable
• It provides subsidies to help people buy insurance without spending more than a a percentage of their income (5% scaling up to 12% as incomes rise)
• It provides subsidies to small businesses to offer coverage to their employees.
• It exposes people to pricing signals but also limits their exposure with subsidies that confines their out-of-pocket expenses to a percentage of their income (a maximum of around 20%)
• It improves the insurance offered to people, mandating real coverage, minimum benefits, guaranteed enrollment, and it prohibits rescission
• It reduces the Federal budget by $132B over the next 10 years (source: http://www.cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers_Correction_Noted.pdf)

And equally important, it includes scores of potentially cost-saving measures such as bundled payments, accountable care organizations, eliminating Medicare Advantage overpayments, and an independent Medicare payment advisory board.