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Collateral Damage

Image has not been found. URL: /wp-content/uploads/2008/10/pills.jpgMedical costs are rising at a faster clip than both wages and inflation. (flickr)

Health-care reform — an expensive and politically thorny proposition in any environment — could be particularly tough in the face of a plunging economy.

Yet to hear the candidates tell it, the next president will usher in an era of sweeping changes. Both Sens. John McCain and Barack Obama are pushing overhauls of the health-care system that purport to save families thousands of dollars while covering millions of the uninsured. Some estimates put the cost of their plans in the trillions. Neither candidate has said specifically how he would pay the tab.

The financial storm arrives at an inopportune time in the health-care debate. Nearly one in six Americans is uninsured. If the unemployment rate increases, in a system where coverage is tied jobs, that could well go higher.


Illustration by: Matt Mahurin

Meanwhile, employers facing stiff overseas competition are increasingly limiting health coverage for employees or dropping it altogether. Medical costs are rising at a faster clip than both wages and inflation. Under the next president, the oldest baby boomers will become eligible for Medicare, which is projected to go belly up in a decade. Powerful voices in Congress are pushing for a comprehensive shakeup to save the sinking ship.

With the economy in turmoil and a budget deficit likely to top $500 billion next year, many health-policy experts question how far Obama or McCain could push their health-care plans.

“There’s no doubt,” said Mark V. Pauly, economist at the University of Pennsylvania’s Wharton School, “that the reduction in revenues will make it harder to accomplish health-care reforms.” As for available taxpayer dollars, “Well, there aren’t going to be any,” Pauly added.

He’s not wrong. Faced with the economic turmoil, Congress has intervened in the economy and in the financial system in ways not seen in generations. Since January, Washington has stepped in with a $168-billion stimulus package, nationalized Fannie Mae and Freddie Mac, bailed out American International Group and enacted a $700-billion Wall Street bailout, which will add hundreds of billions of dollars to the deficit.

And there may be more to come. Today, Democratic leaders will meet in Washington to discuss the possibility of a second stimulus package. Early estimates its cost at $150 billion.

The result?

The country is broke — at least as it concerns new spending proposals. In fiscal year 2008, which ended Sept. 30, Washington spent $438 billion more than it collected in revenues. The government must borrow money — largely from abroad — to make up the difference.

Next year looks worse. The projected deficit for 2009 is $482 billion, and that doesn’t take into account the $700-billion bailout program. Some economists have floated the possibility that the imbalance could hit $1 trillion.

Into that maelstrom will walk either McCain or Obama, their health-reform plans in tow. Many details of those plans remain fuzzy, but independent analyses indicate their costs will be enormous. The Tax Policy Center, a collaboration of the Brookings Institution and the Urban Institute, estimated that Obama’s plan will cost $1.6 trillion over 10 years, while McCain’s will run $1.3 trillion.

The Lewin Group, a nonpartisan health-care consulting firm, released its own analysis last week. It tallied the Obama and McCain plans at $1.2 and $2.1 trillion, respectively, over 10 years.

“They haven’t explained how they’re going to pay for all these changes,” said John Shiels, senior vice president of the Lewin Group. If the candidates had offered a financing plan, he added, the numbers “would be dramatically different.”

The return on those investments would be substantial. The Lewin Group estimates the Obama plan would reduce the number of uninsured Americans — almost 46 million in 2007 — by 26.6 million people. McCain’s plan would reduce the uninsured by 21.1 million, Lewin found, though that figure is far higher than other analyses.

With so much at stake, patient advocates and many health-policy experts say the up-front costs of overhauling an unsustainable health-care system are well worth it.

Image has not been found. URL: http://www.washingtonindependent.com/wp-content/uploads/2008/09/obama-mccain-300x200.jpgSens. Barack Obama and John McCain

“It is essential to improving the economy,” said Jacob Hacker, political science professor at the University of California, Berkeley, and the author of “The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream.”

Still, in the face of the economic crisis, many experts say, budget considerations will dictate the debate at least as much as the policy details. “In this case, we’re not talking about health-care policy,” said Robert Blendon, professor of health policy at Harvard University. “We’re talking about economic policy.”

An impasse on health care would come at a terrible time for the nation’s economy. Policy experts have long warned that health-care spending poses the single greatest threat to the nation’s fiscal health. Medicare and Medicaid spending amounted to 4 percent of the gross domestic product last year. That percentage is projected to jump to 12 percent by 2050 and 19 percent in 2082, according to the Congressional Budget Office. The longer Congress puts off enacting reforms, the more dramatic the changes will have to be — and the more severe the effects.

Private spending on health care follows a similarly unsustainable trajectory. While the nation’s total health-care spending amounted to 16 percent of GDP in 2007, it is expected to be 25 percent in 2025 and 49 percent in 2082, CBO projects. Unlike the housing market, experts don’t expect the health care market to deflate.

“I wish I thought health-care spending were a bubble,” Alice Rivlin, former CBO director and now Brookings Institution scholar, said during an economic discussion in Washington last week. “It is not.”

Much of what will be possible on the health-care reform front hinges on a slew of fiscal unknowns. No one’s sure, for example, how long the current economic downturn will last. Nor does anyone know how much of the $700 billion in bailout cash will be returned to the federal coffers — or when.

If the Treasury has to pay more that it wants for the bad loans it plans to buy from financial institutions, there will be less money available to cover other federal programs.

Many experts say the financial crisis could play to Obama’s advantage in the health-care debate. That’s because the crisis has made voters, once wary of too much government intrusion, more receptive to tighter federal regulation of private markets.

“There’s going to be much more public support for regulation over the next four years than there was in the last eight,” Blendon said. “I can’t imagine that that won’t trickle down to the health-care debate.”

There is evidence that such regulation is needed. Last month, Families USA, a health-care advocacy group, released a report that found that insurance premiums in Virginia rose 83 percent between 2000 and 2007, while median incomes rose 20 percent. “[Consumers] want something that will more directly affect their pocketbooks,” said Ron Pollack, Families USA executive director, “and health care is central to that.”

McCain, by contrast, has a very different vision for health-care reform, pushing a plan that greatly expands the role — and freedoms– of private insurers. Writing in Contingencies magazine recently, the GOP presidential hopeful said, “Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.”

That position might rally McCain’s most conservative base. But in an economic environment where Americans are increasingly anxious about their finances — and increasingly wary of unregulated private enterprise to manage it — such an argument might find more opposition than just a Democratic Congress.

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