The ‘central fiscal challenge’ the candidates aren't discussing

Health care reform was a popular focus at the Democratic Convention. On the first day of the convention, an ailing Sen. Ted Kennedy brought the crowd to its feet with his “hope that we will break the old gridlock and guarantee that every American, north, south, east and west, young and old, will have decent, quality, affordable health care as a fundamental right and not a privilege.” The next evening, Sen. Hillary Clinton declared, “I can't wait to watch Barack Obama sign a health care plan into law that covers every single American.”

Universal coverage didn't get the same emphasis at the Republican convention, mainly because GOP voters are more likely to rank the cost of health care rather than coverage as a top priority.

Voters might be surprised to learn, though, that Sen. John McCain's health care reform proposal is in many respects more radical than Sen. Obama's. Sen. McCain would make the value of employer-paid health insurance taxable income, like wages. The enormous federal revenue derived would provide tax credits to buy individual coverage instead.

Mr. Obama, by comparison, seeks to close the gaps in employer-based coverage by offering income-related subsidies to buy into the same group insurance program offered to federal employees.

Neither plan would cover all of the uninsured. Mr. Obama's plan would cover many more people, according to independent analyses, albeit at a much higher cost to the federal government. Mr. McCain's plan would modestly expand coverage at a substantially lower cost to the federal treasury.

A missing piece

One piece largely missing, though, from either of the candidate's plans is control of overall heath care costs. The challenge is enormous; the solutions, complicated; the politics, divisive.

Mr. McCain and Mr. Obama propose some steps: increasing competition among insurers, emphasizing prevention and care coordination, investing in health information technologies and researching comparative effectiveness of treatments. These strategies could make a dent in health spending, but aren't enough themselves.

According to the Congressional Budget Office (CBO), without any changes in federal law, total health care spending will rise from 16% of gross domestic product (GDP) in 2007 to 25% by 2025 and 49% by 2082. Net federal spending on Medicare and Medicaid will rise from 4% of GDP to almost 20% over the same period. As CBO Director Peter R. Orszag told Congress, “Rising health care costs represent the central fiscal challenge facing the country, exerting a larger influence on the long-term fiscal balance than other commonly cited concerns such as the aging of the population.” He suggested that reducing spending in Medicare's high- and medium-cost areas to the levels of its lowest-cost areas would reduce overall spending by as much as 30%.

The challenge of reducing spending is enormous. There would have to be agreement on what constitutes overuse or misuse. Policies would have to change the behavior of physicians, patients and service providers.

For instance, the CBO suggests that health care benefits could be linked to the value of services, so that patients would pay more if they opted for expensive services that have low value. Physicians might be paid for service bundles to reduce incentives to order more.

Since new technologies drive much of the increase in health care spending, regulatory controls might put the brakes on approval of new technologies or drugs that have unproven value compared to existing ones. A market-based approach might allow such technologies to enter the market, but require patients to pay more for those of unproven value while also eliminating the financial incentive for physicians to provide them.

Controlling the cost of programs like Medicare might involve restructuring the benefits and cost-sharing so that higher income patients pay more, or delaying the age of eligibility. Or, the federal government might have to use its regulatory reach to lower the prices paid for new and existing technologies or drugs.

Each option would invite enormous political opposition. Physicians and companies that earn much of their livelihood from technologies of uncertain value will object to changes that target them. They will enlist patients to fight policies that restrict access or require higher co-pays.

Price of silence

Is it any wonder, then, that the candidates don't like to talk about controlling health care spending? Silence comes with a price, though. In a democratic society, health care policies cannot be redesigned to cut costs without the support of the voters.

By not talking about the central fiscal challenge facing the country, the next president is also not gathering the political support needed to bring costs under control. Absent cost controls, it will be more difficult to find the resources needed to fulfill Mr. Kennedy's hope of finally breaking the gridlock to achieve “decent, quality, affordable health care” for all.