Why Obama’s Failing Big on Healthcare Reform

The rush into expanding medical coverage without controlling costs verges on the reckless.

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Why does it cost the United States about $7,000 per person annually in our incomplete national healthcare system, while other major economic competitors provide universal coverage for about half that amount? The answer is quite simple: The federal government pays whatever the cost will be.

Virtually every expert agrees that the root of our runaway health inflation is the fee-for-service approach. Every visit, every test, every exam, is money in the bank for each serving doctor, hospital, and test center, so there is an incentive to do more and more of them. That is how doctors get paid—and how they get protection from lawsuits. The cheapest malpractice insurance for a physician seems to be ordering multiple tests or CAT scans.

We have volume without value. There is no direct correlation between good health and higher hospital costs, higher doctor's payments, higher drug prices, and higher administrative costs. Atul Gawande and three fellow medical experts recently reported in the New York Times about a study of 10 regions that spent 16 percent less per Medicare patient than the national average but nonetheless had quality scores well above average. "If the rest of America could achieve the performances of regions like these, our healthcare cost crisis would be over."

The crisis is real. When we contemplate the pitiable scenes in Inglewood, Calif., where thousands waited all day for free dental work, eye care, immunizations, mammograms, and the like, we want to see everyone adequately insured. But left in place, the current system will drive our health costs up from a fifth of the U.S. economy to a third, with taxes sure to rise to meet the bill. The simple but critical question is what level of coverage is actually affordable and sustainable.

We must learn from our history, specifically from the birth pains of Medicaid and Medicare under Lyndon B. Johnson. His former senior domestic policy aide, Joseph Califano, wrote recently about that experience. "No one had discovered MRIs, PETs, CAT scans, organ transplants, and exotic and expensive cancer chemotherapy. None of us anticipated the extraordinary leap in life expectancy that would lead Medicare to spend a third of its budget during the last year of a beneficiary's life and Medicaid to pump an even larger proportion of its dollars into nursing homes . . . . Now," Califano wrote, "we are in the early days of a revolution in neurology, genetics, molecular biology, stem cell research, mechanical hearts and lungs, and domino transplants that promise all sorts of (costly) cures that don't exist today." In other words, we must respect the potential impact and future expense of medical discoveries, given what they did to Medicare and Medicaid costs, and be cautious about congressional clairvoyance that claims it can project healthcare costs 10 years into the future. That is why the estimate of future costs should not be limited to the 10-year budget horizon. If we don't look beyond that, we will repeat the errors of the recent prescription drug subsidy law that will make Medicare's costs soar.

What does history teach us? Califano answers: "The only sure way to bend the curve and curb the rate of increase in healthcare costs is to keep people out of the sick care system, to put as much profit in prevention as there is in acute care, and to put financial gain and pain into how individuals take (or don't take) care of themselves."

The Obama healthcare program has failed the American public on this critical standard. The independent Congressional Budget Office recently released a bombshell evaluation of the reform bills pending: They'd increase the federal deficit by at least $1 trillion over the next decade and even more in the second decade, and yet only marginally lower the number of uninsured in the nonelderly population. This is not what we thought we were getting.

Obama envisages financing his revolution in part by cutting Medicare, in part by raising taxes, and in part by leaving it uncovered—all so that he can extend benefits to those low-income uninsured individuals. The CBO estimated that this would add at least $239 billion to the budget deficit over the next 10 years, and this after increasing taxes by almost $600 billion—not to mention the cumulative shortfall in the second decade. Then it would add up to more than $800 billion.