Do nothing? Not an option

If costs keep growing at their current rate, healthcare will consume 20% of all spending in the U.S. by 2018. Nevertheless, critics of “Obama-care” argue that the country can’t afford the reform bills moving through Congress. They claim the added costs imposed by the reform would lead inexorably to painful cuts in existing federal health programs, particularly Medicare. These concerns aren’t unreasonable, considering the pressure that the enormous federal deficit will put on government services. But the better question is what might happen to Medicare if the healthcare system isn’t reformed.

The federal government is expected to spend $1 out of every $5 in its budget on healthcare this year. The biggest chunk -- $425 billion -- will go to Medicare. The healthcare reform bill moving through the House would increase the federal healthcare budget by about 11%, adding a little more than $1 trillion in spending over 10 years, the Congressional Budget Office projected. Some of the new spending would go into Medicare, raising payments to providers and supplying more coverage for prescription drugs. The costliest aspect by far, though, is the insurance subsidies for the working poor, millions of whom lack coverage today.

Republican opponents of the bill say Medicare recipients would feel the pain right away. The House measure would make more than $500 billion worth of reductions in Medicare programs, which smacks of making the elderly pay for the new insurance subsidies for younger people. Some critics also claim that the bill would give bureaucrats more power to cut benefits.

There are ways to pay for healthcare reform that wouldn’t touch Medicare -- for example, by reducing the tax exemption for health insurance benefits. The point that critics of the bill gloss over, however, is that the Medicare program has to be reined in regardless of anything else Congress does. With costs outpacing revenue and a key trust fund headed for insolvency, beneficiaries already face the prospect of benefit cuts or sharp increases in premiums. The best defense would be to enact reforms that address the inefficiencies, perverse incentives and overconsumption that have been raising costs throughout the system significantly faster than inflation. Congress is attempting to do just that.

The right steps include shifting from the current fee-for-service approach, which pays by the procedure, to one that encourages doctors and hospitals to focus on prevention and perform the most effective treatments. Other necessary changes include better coordination among primary-care doctors, specialists, hospitals and clinics; improved systems for sharing records and monitoring follow-up care; and more research comparing the effectiveness of treatments, drugs and devices. The bills moving through Congress try to reshape the system along these lines, albeit gradually. That’s because there’s no obvious way to implement many of the changes. Instead, the bills rely on trial runs and demonstration projects to chart a path.

As valuable as these improvements would be, they wouldn’t come fast enough to solve Medicare’s short-term problems, most notably the looming insolvency of the trust fund for hospital care. That’s why lawmakers have to curb Medicare spending even as they try to fix the systemic problems in healthcare. It’s understandable why some critics are uneasy about the administration’s proposal to let a board of medical experts adjust Medicare payment rates for doctors and hospitals. All the same, lawmakers must find a way to shield the rate-setting process so that it responds to medical needs, not political pressure. And as the House bill has proposed, they should eliminate the higher rates awarded to the Medicare Advantage program, which encourages seniors to receive care through HMOs. It makes no sense for Washington to subsidize competition when it drives up costs.

Those steps are no substitute for a comprehensive reform bill that lowers costs and improves results throughout the system. But they’re certainly more palatable than the changes that would be needed if the healthcare system isn’t overhauled.