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Economic Case for Health Overhaul Rolled Out at White House

By Jane Norman, CQ HealthBeat Associate Editor

June 2, 2009 -- The Obama administration issued an economic analysis Tuesday saying that a "genuine" health care overhaul would slow the growth of health costs and reduce the deficit—while not taking a stand on spending reductions or revenue increases.

"We don't try to get ahead of the legislative process and identify particular actions but to just make the case this is a realistic goal, albeit a challenging one," Christina Romer, chairwoman of the Council of Economic Advisers (CEA), said.

The hope, she said, is that the report issued by the CEA "will help strengthen the resolve of policy makers to undertake the serious changes that are necessary." The report "shows the cost of doing nothing," said Romer. It says that without change, the share of the Gross Domestic Product (GDP) devoted to health will rise from 18 percent in 2009 to 28 percent in 2030.

The report estimates that if growth for health care premiums continues at 4 percent a year, less than the historical average, premiums for family coverage will reach $25,200 per year by 2025.

Underlining a White House push to get things moving that was emphasized with the CEA report, President Obama cited before meeting with Senate Democrats on health on Tuesday afternoon conclusions from the report.

"To give you a sense of what we're looking at down the road if we don't initiate serious reform, one-fifth of our economy is projected to be tied up in our health care system in 10 years; one fifth," he said. "Millions more Americans are expected to go without health insurance if we don't initiate reform right now. And outside of what they're receiving for health care, workers are projected to see their take-home pay actually decrease if we don't get a handle on this."

Obama added that "this window between now and the August recess I think is going to be the make-or-break period. This is the time where we've got to get this running."

Separately, Senate Majority Leader Harry Reid, D-Nev., said financing of an overhaul—which could include some taxation of employee health benefits—remains unclear as two Senate committees move toward forming single bill. "That's the most difficult issue of all," Reid told reporters. "And at this stage, nothing is off the table and nothing is on the table."

The CEA report argues that throttling back the annual growth of health costs by 1.5 percentage points would increase GDP by more than 2 percent in 2020 and 8 percent in 2030. That would put $2,600 more in the typical family's pocket by 2020 than if reform had not occurred, it estimates.

In addition, the report says that slowing growth would prevent "disastrous" increases in the federal budget deficit and lower the unemployment rate. Expanding coverage to the 46 million uninsured will increase "net economic well-being" by $100 billion a year by covering the uninsured, the report says.

"Reform would likely increase labor supply, remove unnecessary barriers to job mobility and help to "level the playing field" between large and small businesses," the report adds. The theory is that people won't stick with jobs simply to hang on to health insurance, and that small business will benefit by obtaining access to better compensation packages.

Said Romer: "I am now the most passionate advocate for health care reform probably in the entire White House. . . it's making the case that doing health reform well is incredibly important for the economy."

Doing it "well" means affordable coverage must be expanded to the uninsured and costs must be controlled, said Romer.

Republicans criticized the report for a lack of specifics on how to accomplish that. Rep. Roy Blunt, R-Mo., head of the House Health Care Solutions Group, said "the bare bones details we have seen from the administration and other side of the aisle do nothing more than set Americans up for the delayed or denied care patients in countries with government-controlled health care are currently experiencing."

The report was rolled out at an event at the Eisenhower Executive Office Building that also included Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Christopher J. Dodd, D-Conn., a top member of the Health, Education, Labor and Pensions Committee filling in for Chairman Edward M. Kennedy, D-Mass.

Later in the day Romer appeared at the Brookings Institution at a forum including David Cutler, a Clinton administration member of the CEA and Otto Eckstein professor of applied economics at Harvard University, and Douglas Holtz-Eakin, former chief economy policy adviser to Sen. John McCain's presidential campaign and former head of the Congressional Budget Office.

Holtz-Eakin said that proposals for change in system represent "an opportunity we do not want to squander" for economic growth. He praised the analysis for "quantitative and important insights," though he said trends might not be as dire as predicted. A "very optimistic" view of any health overhaul is presented in the report, he said, and the scenario presented is "very speculative."

The prospects of job loss were explored by the trio. Cutler estimated it will take three to five years of very concerted effort before progress will be seen in slowing costs. Administrative simplification in health care could mean "you can fire a bunch of workers," he said.

Holtz-Eakin said "the first thing is getting reform and David mentioned one reason why this is so hard—because the first thing you think of is firing workers and that gets in the way of the politics of reform pretty quickly because we have all these people's livelihoods being radically rearranged."

But Romer said "remember what we're talking about is slowing the growth rate of health care costs—by all of our estimates the health care sector is still going to be growing as a share of the economy so the idea that we're throwing a lot of people out of the health care sector isn't plausible." She said that "really what we're talking about is shifting them around" within the health care industry.

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