Upfront costs complicate Obama's health care plan

Monday, May 11, 2009
By: Ricardo Alonso- Zaldivar

$1.5 trillion over 10 years is total cost

Costs are emerging as the biggest obstacle to President Barack Obama's ambitious plan to provide health insurance for everybody.

The upfront tab could reach $1.2 trillion to $1.5 trillion over 10 years, while expected savings from wringing waste and inefficiency from the health care system may take longer to show.

Details of the health legislation have not been written, but the broad outlines of the overhaul are known. Economists and other experts say the $634 billion that Obama's budget sets aside for health care will pay perhaps half the cost.

Obama is hoping the Senate comes up with a bipartisan compromise that would give him political cover for disagreeable decisions to raise more money, such as taxing some health insurance benefits. In the 2008 campaign, Obama went after his Republican presidential rival, Arizona Sen. John McCain, for proposing a large-scale version of that idea.

Concerns about costs could spill over in the coming week when the Senate Finance Committee holds a hearing on how to pay for coverage. Committee leaders hoping to have a bill before the full Senate this summer must first convince their own members that it won't break the bank.

"You go to a town meeting and people are talking about bailout fatigue," said Sen. Ron Wyden, D-Ore. "They like the president. They think he's a straight shooter. But they are concerned about the amount of money that is heading out the door, and the debts their kids are going to have to absorb."

Sen. Mike Enzi, R-Wyo., said cost control has to come ahead of getting more people covered. "Unless we halt skyrocketing health care costs, any attempt to expand coverage will be financially unsustainable," he said.

Obama wants to build on the current system in which employers, government and individuals share responsibility for health care. He says his plan would make health insurance more affordable, particularly for small businesses and individuals. The government would subsidize coverage for low-income people and some in the middle class.

The U.S. spends about $2.5 trillion a year on health care, more than any other advanced country. Experts estimate that at least one-third of that spending goes for services that provide little or no benefit to patients. So theoretically, there's enough money in the system to cover everybody, including an estimated 50 million uninsured.

But one person's wasteful spending is someone else's bread and butter.

The office visits, tests, procedures and medications that the experts question represent a lot of money for doctors, hospitals, drug companies and other service providers. Dialing them back won't be easy. Providers will resist. Patients might complain their care is getting rationed.

The chairman of the Senate Finance Committee, Sen. Max Baucus, said "it's clear that the financing of this is not going to be easy." Baucus, D-Mont., says the basic approach to health care must become more economically efficient.

Instead of paying doctors and hospitals for the number of services they provide, as happens now, Baucus wants to tie reimbursement to the quality of care. Quality would measured by standards that doctors and hospitals have a hand in shaping.

Yet those kinds of changes take time, several years or even the better part of a decade.

The money to cover the uninsured will be needed right away, about $125 billion to $150 billion a year.

That leaves hard choices for lawmakers and Obama.

Baucus favors requiring individuals to get health insurance, which will help. But he also supports subsidies for people who can't afford coverage _ a cost to the government.

To help close the money gap, Baucus is open to some limits on the current tax-free treatment of employer-provided health insurance.

Health benefits are considered part of an employee's compensation, but are not taxed. If all health insurance were taxed like regular income, the government could raise an additional $250 billion a year.

In the campaign, Obama opposed tampering with tax-free employer-based health care, saying it would undermine the system that delivers coverage to most people. Other prominent Democrats agree. Asked if he would support taxing benefits, Rep. Charles Rangel, D-N.Y., the top tax-writer in the House, simply said: "No way!"

Baucus says doing away with the tax break altogether would cause harm, but some limitations might curb waste in the system. Obama's aides say he's still opposed, but willing to consider any serious proposals from Congress.

Obama's opposition to taxing employer-provided health insurance isn't the only campaign position he might have to jettison to pay for health care.

He once criticized his chief Democratic presidential rival, Hillary Rodham Clinton, for proposing that everyone in the U.S. be required to have medical insurance. Yet such a mandate probably will be in what Congress puts together because requiring individuals to pay would lower federal costs.

For Obama, there are no easy ways to pay for health care. Options include raising other taxes, cutting deeply into Medicare payments to providers, or phasing in the expansion of coverage for the uninsured _ beyond his four-year term.

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