Attention: Deficit

Should progressives embrace entitlement reform? Or look elsewhere to narrow the gap? An exchange between two leading fiscal experts.

Sawhill argues that she supports per capita public spending limits on health care because some other advanced countries have instituted caps, and “their citizens are no less healthy or content with their care than those in the United States.” But comparisons with other advanced nations also show that those countries have figured out ways to cover all their citizens at a much lower cost than we do, while generally providing better care. A new report from the Commonwealth Fund, a health-policy institution, examined the U.S. system in relation to six other countries, including Canada and the United Kingdom, and found that the United States “fails to achieve better health outcomes than the other countries, and…is last on dimensions of access, patient safety, coordination, efficiency, and equity.” In that context, placing caps on public health-care spending, without first instituting a national system of universal coverage that would also give the federal government much greater cost-control leverage, will inevitably impose large new financial burdens on the elderly and poor.

Building on the new health-care legislation to implement changes that would elevate the United States from its abysmal international rankings will require a more robust federal role in the system. I have argued previously in Democracy in favor of federalizing Medicaid, in part because that highly decentralized program contributes to the fragmentation that enables rampant cost growth. The health-care reform bill takes important steps in the direction of federalizing Medicaid, but it still relies too heavily on states to carry out regulatory reforms and create insurance exchanges. It will be an ongoing project for decades to come to make our system much more efficient. Throughout the process, the goal for progressives should be to strengthen the rather meager protections Americans now receive. Every other advanced nation has managed to afford universal health care, and the United States can as well.

Sawhill emphasizes that individuals “bear some responsibility for their own future welfare.” No one can disagree with that sentiment. But where would she draw the line? Given payroll taxes that workers have already contributed, at what individual income and/or asset levels should Social Security and Medicare benefits be reduced? Is there another country that might serve as a model for the United States, one that has found the right balance between individual responsibility and governmental protections?

Instead of serving up raw spinach that hardly anyone wants to swallow–for good reason!–progressives should be offering a menu that features more of what once made them popular. Every entrée should also include fiscal responsibility as a side dish, but deficit reduction isn’t the main course.

Sawhill responds: As Greg Anrig notes, he and I agree on many issues, from the need to reform taxes to the importance of spending more on public investments to the centrality of health-care costs in creating a fiscally unsustainable future. Where we disagree is on the most promising ways to constrain future health-care costs, on the right balance between spending cuts and tax increases, and on the relative importance of fiscal responsibility versus other goals.

We both believe that the health-care reform bill should be strengthened in ways that will reduce cost inflation. Anrig mentions a public option and the federalization of Medicaid as possible strategies for achieving this goal. These are promising ideas, but I am not convinced they are sufficient. He dislikes my proposals to cap spending and pay providers based on evidence of effectiveness. The fact is neither of us really knows what will happen to medical costs or what it would take to slow them down. But in the absence of stronger measures than those contained in the recent reform bill, I see nothing that reassures me. In light of four decades of costs rising 2.5 percentage points faster than GDP, I fear that progressives are engaged in wishful thinking about the seriousness of the problem.

Anrig buttresses his own optimism by citing a recent CBO report indicating that under their long-term extended baseline forecast, the 50-year fiscal gap has declined from 2.6 percent of GDP to 0.8 percent, entirely because of health-care reform. (The improvement is primarily due to the excise taxes on high-end plans, which 50 years from now will impose higher taxes on just about everyone.) But this estimate is, by CBO’s own admission, based on a set of very unrealistic assumptions, such as the elimination of all the Bush tax cuts and reductions in doctor’s fees that Congress is unlikely to support. Under CBO’s more realistic “alternative fiscal scenario,” this same gap is 6.9 percent! What this means is that Congress would need to enact an immediate reduction in spending or increase in revenues of about $1 trillion a year to put us on a sustainable course. If all of this money had to be found on the revenue side of the budget, taxes would need to increase by more than a third over current levels. Perhaps even more telling is the fact that CBO is unwilling to assume that health-care reform will have any effect on health-care costs over the long run. (They do expect some one-time savings over the next 20 years.)

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