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The Next Big Debate on Health Care Likely to Be Driven by Deficit Issue

By John Reichard, CQ HealthBeat Editor

January 28, 2011 -- It's pretty clear by now that worries over deficit spending are going to frame Washington's big policy debates in the coming year. And health care is at the top of the list.

Already, cost issues have dominated discussions over changing parts of the new health law—or getting rid of it altogether. That's because supporters of the law argue that it will save money over the long run, and opponents say the law will add to the government's health care spending.

And beyond that, there are several more places where the deficit debate is expected to be intertwined with health care. We can also expect talk of taxing health care benefits, restructuring Medicare and overhauling all of health care to be based on a "defined contribution system"—which essentially means less generous health benefits.

Congress won't act on any of this soon. But debate helps to set the boundaries around what is likely to happen eventually, and lawmakers have indicated the issue is at the top of the agenda. "Let's put it very simply," said Paul D. Ryan, the marquee man of GOP fiscal policy, on Jan. 26 at his first hearing as House Budget chairman. "Our fiscal problem is a health care problem. Health care spending is driving the explosive growth in our spending and in our debt."

Democrats say big tax breaks for the wealthy and high levels of defense spending have much to do with the growing debt crisis, but they don't deny that the issues of deficit reduction and health care will intersect in a big way in the new Congress.

At a recent policy forum on health care, Chris Jennings, the top health policy adviser in the Clinton White House, and Dean Rosen, who was a top health policy aide to Bill Frist when Frist was Senate Majority Leader, said they already are hearing that message every day from lawmakers.

"When you look a lot of members in the eye, as Chris and I both do, they will tell you that a lot of them don't care if they don't get re-elected," said Rosen. "This is a significant issue for them. They just do not think that we can continue to prosper and survive as a country unless we can keep our deficit spending under control."

Meanwhile, the back and forth on the fiscal impact of the law continues. The day after the president's State of the Union address, Ryan ushered experts into his hearing room to topple public confidence in a Congressional Budget Office estimate that the law would cut the deficit by $230 billion in 10 years and by well over a trillion dollars in 20 years.

If they are right, and CBO's estimate is wrong, scrapping the law may really keep deficit spending from growing worse. But Republicans go further, saying that repealing the law would actually reduce deficit spending, not just keep it from getting worse. Instead of financing expanded health coverage, they say the $500 billion in Medicare cuts in the law can be applied to deficit reduction.

But Jennings says that's an illusion, because hospitals and other providers only agreed to those cuts because they'd make up the losses by having more insured customers. They would block any effort to apply the Medicare cuts to deficit reduction. "How many providers are going to say, 'thank you, cut me, and don't reinvest in coverage expansion'? I mean they're going to be furious," Jennings says. "There's just no way that's a sustainable political policy."

Beyond the Repeal

Rosen agrees that cuts in Medicare and Medicaid payment rates set by the government won't be the ticket to deficit reduction. So what will be on the table?

"Tax reform will be a piece of it," he says. That includes ending or capping "the exclusion"—the provision that excludes employer-paid insurance premiums from an individual's taxable income. Doing so would raise revenue and prod workers to pick plans that have lower premiums and don't overpay for services, advocates say.

He also says significant changes to Medicare and Medicaid should be part of the debate. "The interesting question is whether we do say for the first time ... we just can't afford the Medicare program as it's structured now. We're going to have to look at something that does look different for people who are younger," Rosen said.

Ryan's "Road Map" for deficit reduction would keep Medicare as is for most baby boomers. But when Americans 54 and younger became eligible for Medicare they'd be given vouchers for a fixed sum to choose among competing private plans. Market forces, not the government, would dictate payments to doctors and hospitals.

The right-leaning American Enterprise Institute, along with George W. Bush administration health budget official James C. Capretta, is backing this fixed-dollar approach as part of a 'Beyond Repeal and Replace' project. The idea: Medicare, Medicaid, and private insurance should be based on "defined contributions," not a promised package of "defined benefits." Payers would decide what they could spend, not just pay whatever benefits cost. "Instead of planning for disaster, you could plan for solvency," Capretta told a recent AEI forum. Each American would get a refundable tax credit to buy coverage financed by ending the exclusion.

It's all politically unthinkable, of course. But that's what deficit reduction is.

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