As with many of President-elect Obama’s initiatives, health care reform will have substantial upfront costs, but an even bigger long-term payback. Sens. Max Baucus and Ron Wyden, Andy Stern, and Len Nichols all rightly point that the payback will be a healthier, more productive nation and a more productive health care sector, not to mention the social justice achievement. The necessary investments include coverage and access to care for the uninsured, chronic care management, medical homes, information technology, integrated care systems, etc. The challenge is how to budget the upfront costs while ensuring that investments deliver actual savings.

The good news for health care reformers is that much of the savings from productivity increases in the health care sector will accrue to government’s ledger. Government health care programs and subsidies account for over half of the spending on health care. Saving money in health care can be a significant boon to the government’s budget as well as the private sector. In contrast, investments in energy, infrastructure, and other public endeavors won’t produce a big return to the government’s bottom line because the benefits are broadly diffused throughout the economy.

The bad news is that the federal budget process is ill-equipped to account for savings over time. Health care reform can and should pay for itself, but the solution to the budget dilemma is not to put off worrying about the costs. The Administration and Congress need to set the nation’s budget based on realistic estimates of the costs, but the budget process needs to change in order to account for projected savings from investments and to set in advance clear consequences if the savings don’t materialize.

In other words, budget reform and health care reform must go hand in hand. That will make reform harder, but it’s the only way to avoid a politically unacceptable choice between health care reform and fiscal responsibility.

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Health care reform must be done in a forward-thinking, fiscally responsible manner. The costs of any health care reform proposal will be significant, but they must be fully offset. Adding new unfunded liabilities, in the face of the pending insolvency of the Medicare Trust Fund and unsustainable rates of growth of Medicaid spending, would be irresponsible. It would be a kick in the teeth to an economy that is already staggering. We also need to move beyond campaign rhetoric and realize that letting the 2001 and 2003 tax cuts expire will not produce any new revenue. These tax cuts are scheduled to expire under the Congressional Budget Office baseline, and using budget gimmickry to change the rules will only increase the deficit. In considering potential funding sources, I would recommend that my colleagues give careful consideration to changing the current tax treatment of employer provided health insurance. Current law provides the most generous tax benefits to the wealthiest individuals with the most generous health plans, while providing little or no assistance to lower income workers and the self employed. That is fundamentally unfair, and creates perverse incentives that actually increase health care costs. I have a proposal to change this so that everyone that has health insurance can receive tax benefits regardless of where they get their insurance. Reforming our flawed, unfair tax code would make it easier for all Americans to purchase affordable health insurance.

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When it comes to fixing our broken health care system, the question isn't so much "how much does health reform really cost?" as it is "what are the desired goals and what are the costs and tradeoffs?" In identifying the costs and tradeoffs, you can't only look at the monetary cost. You also have to measure the social and political costs of the changes being proposed and their expected future rewards.

When you consider all the costs – both budget and societal – it turns out, as Dr. Ezekiel Emanuel often says, that bolder reform is actually cheaper than tinkering around the edges of the current system. Leading experts repeatedly state that one-third of current health spending doesn't improve people's health and some of that spending even makes people sicker. They argue to get real savings wasteful spending must be eliminated. That requires changing the incentives and behavior that drive American health care and should include (as Chairman Max Baucus pointed out in his post) ways to fix the Federal tax code so that it rewards efficiency and stops favoring the wealthy.

As an example of how bold, comprehensive reform can save taxpayers and consumers money, the CBO and Joint Committee on Taxation analyzed the Healthy Americans Act (HAA) and found that the changes made by the bill would cover over 99% of the population and be revenue-neutral two years after implementation, and then reduce the rate of growth in health care costs thereafter. The legislation is supported by 17 U.S. Senators: 8 Democrats, 8 Republicans and 1 Independent, and prior to the CBO analysis, an analysis of HAA was released by the highly respected Lewin Group, which found similar cost savings under the HAA's approach.

Clearly, the HAA won't be the only approach considered and it will be important to be flexible as the Congress and incoming Administration develop a framework for action on health care reform.

The bottom line is that the CBO has proven that all Americans can have good, quality, affordable health care for what the country is spending today. The hard part is making decisions that are in the country's long-term interest while providing security during the inevitable transition. This is especially important now when so many Americans are feeling financially insecure.

In listening and talking to more than 80 senators in the past two years about health reform, I've been encouraged by what really seems to be a growing consensus on many of the key principles of reform. Chairman Baucus recently released a White Paper setting out a possible framework for reform. This proposal had much in common with President-Elect Obama's reform proposal. The Senate sponsors of the Healthy Americans Act recently wrote the President-Elect, and offered to work with him to build a bipartisan consensus for reform. We outlined key principles – that have much in common with both Sen. Baucus's and the President-Elect's proposals - that we believe create "the best 'roadmap' to build bipartisan consensus on reform." Those principles are:

• Ensuring that all Americans have health care coverage;
• Making sure health care coverage is affordable and portable;
• Implementing strong private insurance market reforms;
• Modernizing federal tax rules for health coverage;
• Promoting improved disease prevention and wellness activities, as well as better management of chronic illnesses;
• Making health care prices and choices more transparent so that consumers and providers can make the best choices for their health and health care dollars; and
• Improving the quality and value of health care services.

Congress and the new Administration have to come together to agree on what it will take to fix health care. Acting timidly in the face of a challenge that affects so many Americans is unacceptable. Bold reform is the only truly cost-effective solution.

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Instead of asking how much it will cost to reform our health system, we should first remember what failing to fix our health system costs our society.

As a result of the lost productivity stemming from the premature death and prolonged illness of the uninsured, we sacrifice over $200 billion of potential economic value each year. That is more than it would cost to cover the uninsured. This is not just a moral issue (though it surely is one); it is also an economic issue of the first order.

Premiums will continue to rise faster than wages if we do not act, rendering health insurance and timely, high quality health care unaffordable for more and more American families every year. In fact, recent projections by my colleagues at New America suggest that by 2016 half of American households will need to spend more than 45 percent of their income to buy health insurance for themselves and their families.

Meanwhile, rising health care costs are undermining the ability of U.S. firms to compete and leading more American jobs overseas. Indeed, the cost of failing to fix our broken health care system is high. It will only rise over time.

Yet, we know health care reform will need to be financed in a way that is fair and sustainable. That is why I believe restructuring the tax treatment of employer-provided health care should remain an option and I applaud Senator Baucus for his efforts in this regard. If we do not use all of the tax preference money, however, we will likely need to finance subsidies from other sources. In total, I think new premium subsidies capable of supporting coverage for all Americans will cost roughly 1% of GDP.

But we are currently wasting 5% of GDP because roughly 1/3 of what we spend now on health care adds no value. Thus, reclaiming 1/5 of the current waste in our health system could pay for covering the uninsured. So yes, part of the value in investing in real reform is to create the conditions necessary for a more efficient and sustainable delivery system that will deliver more tolerable rates of per capita cost growth in the future. This too will require some investment up front (albeit a smaller investment than coverage expansion). Yet, like coverage expansion, investments in delivery system reforms are investments well worth making.

We must reform our struggling health system not in spite of our current economic crisis, but rather precisely because of the impact our health care system has on our economic well being.

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Requiring that health reform be fully paid for as a condition of passage is like taking a novice swimmer, fastening a ball and chain to his foot, telling him to set a world record, and throwing him into the swimming pool.

We’ve been trying to pass universal coverage for almost a century, and we haven’t been able to get the politics right. Getting agreement on what the reform should look like is hard enough without creating a whole new set of interest group opponents who face program cuts or increased taxes to pay for it. The real cost issue is not paying for universal coverage. It’s reducing the rate of cost increases in the whole health system over time. Health reform should include the system and incentive changes that will set us on the right path. CBO won’t provide large scores for any of these changes—certainly not in the budget time frame—but there is wide agreement among health policy analysts on the general direction these reforms should take. And it’s far more important to get these reforms in place and make the basic human right to health care a reality for all Americans than to hit an arbitrary expenditure target.

The failures of our current system are already costing us billions. If we do nothing and let health care continue on its current course, the cost would be greater than the cure.

As it is, health care costs are going up every year, threatening the economic security of working families and hurting business productivity. As costs rise, more and more Americans are forced to drop their health coverage -- resulting in people getting sicker, showing up at hospitals without insurance, and driving up costs for everyone. Meanwhile, U.S. business spending on health care is nearly twice as much per person as our OECD competitors. The longer we wait to fix health care, the worse it will get.

That's why Sen. Baucus's "Call to Action" is so timely -- and such an important step to move this process forward. We at SEIU were especially pleased to see strong support for access and coverage -- including a public plan option that ensures coverage for every American -- plus, strategies for cost containment, payment and delivery system reform, transparency, and more options for long-term care. We agree that the only way to fix the problem is to address access, quality, and cost together.

The New America Foundation estimates that our economy loses as much as $200 billion a year because of the poor health and shorter lifespan of the uninsured -- far more than the price of reform.

So, if it's cost we're talking about, we can't afford not to fix health care.

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There is a threshold question in paying for health care. Do we make huge new commitments while raising taxes and promising ourselves – some day in the far yonder when it is politically feasible – that we really will get health spending under control? Or do we agree that the existing rising trajectory of health spending as a proportion of GDP is unacceptable and begin – now – to redeploy resources as we expand coverage? Congress and too many analysts seem to favor the first option.

How many more times are we going to fall for the argument that if we just add a new commitment today we really will figure out how to get the cost down – tomorrow? Just look at the long-term unfunded obligations of Medicare.

If we are to be serious about paying for expansions in coverage Congress and the new Administration must start now to take action alongside coverage expansion. Among the necessary steps:

o Reform the tax exclusion for health insurance. That’s a $200 billion subsidy that everyone agrees is inequitable, inefficient and discourages efficiency. Mt Obama promises fewer tax breaks for the rich and tax relive for the rest. The exclusion is the obvious place to start. Cap it and use revenue to finance new coverage.

o Seriously income adjust Medicare B and D. Why should affluent Americans get huge subsidies for parts of Medicare they haven’t contributed to through payroll taxes? Use the new revenue for coverage.

o Outcomes analysis and pay for performance either means something or it doesn’t. Medicare should stop paying the health industry in Florida roughly double what it pays in Minnesota for the same result. Use the savings for new coverage.

Or we could just raise taxes and pretend we want an efficient health system, some day.

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Interesting you should invite us to think about the enactment of Medicare and Medicaid in the context of thinking about the cost of health reform today.

I read David Blumenthal’s NEJM article. The lessons he takes away from the Medicare experience are very different from the lessons I glean. Here are five:

1. The cost of Medicare and Medicaid was way beyond what anyone predicted. The reason: failure to realize that when any good or service becomes free, people will consume more of it.

2. Once started, these programs are extremely hard to curtail or even modify. If we ended Medicare today ― collecting no more taxes and allowing no more accrual of benefits ― we would still owe $33 trillion in benefits already
earned! (Results of new NCPA study.)

3. Looking indefinitely into the future, the Trustees have calculated there is an unfunded liability (promises made over and above expected premiums and dedicated taxes) of $85 trillion ― almost six times the size of the entire economy.

4. According to Amy Finkelstein, although Medicare was financially important to the elderly, it created no discernable health benefits in terms of reduced mortality. Link: http://www.john-goodman-blog.com/what-causes-health-care-inflation/

5. Despite no measurable health benefits, the explosion of spending on these two programs forced up prices for everyone else. In fact, HHS’ own internal estimates suggest that every $1 of additional spending buys 67¢ of higher prices and only 33¢ of real health care services.

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Today, the U.S. spends more than any other country on health care, but we still have 46 million uninsured Americans and rank 19th out of 19 industrialized countries in preventable deaths. Health care costs are crippling our global competitiveness and our current health care spending is unsustainable. Health care reform will require an initial investment, but over time, it will vastly improve our system. My blueprint for health reform focuses this investment on improving quality, increasing access, and lowering costs. It is my intention that after ten years the U.S. will spend no more on health care than is currently projected, but we will spend those resources more efficiently, and will provide better-quality coverage to all Americans.

When I outlined my principles for reform in February 2007, I said that shared responsibility would be central to successful reform. Employers, individuals, and the government all bear responsibility in paying for our health care system and all should contribute to making it work effectively. That’s why I’ve said adjusting the current tax exclusion for employer-sponsored health coverage should not be taken off the table. Current tax policies for health coverage are inefficient, inequitable, and regressive. Economists argue that the unlimited tax benefit for the exclusion encourages workers to spend more health dollars than necessary. I’ve said eliminating the current tax exclusion and converting it to a standard deduction or tax credit would go too far, but a targeted approach makes more sense.

It’s important to remember that changing the tax treatment for health care is not our only path to reform. My plan includes other policies – like investing in health information technology, prevention, and care coordination – that take commonsense steps towards reducing spending. I’m also looking for additional ways to lower costs quickly.

The only honest assessment is that reforming our health care system may indeed require some deficit spending - but of all the things we could spend money on as a nation, better health care for our people is a no-brainer. People are dying needlessly and going bankrupt in the current system. It may cost money to change that, but change it we must. And make no mistake – the money will be spent on health care anyway. We simply have to choose whether to spend it to get healthier, more financially secure citizens, or whether to spend it on the status quo for the same ineffective results.

Meeting the challenge of health care reform is not going to be easy and budgeting the effort will not be the only hurdle. But the opportunity to create a healthier, more secure America is too important to avoid. We must work together to make sound policy choices – and sound financial decisions – to reform this country’s health care system once and for all.

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In a time of economic crisis, cost considerations are clearly at the forefront as President-elect Obama seeks to capitalize on the broad public support for widespread coverage expansion and comprehensive overhaul of the American healthcare system. While allowing Bush administration tax breaks for higher income households to expire will fund a portion of the ambitious reform initiatives outlined on the campaign trail, these funds will likely not be sufficient to cover the entire federal cost of the plan.

Deficit financing in the early years can be justified as part of an economic recovery program as expanded health insurance coverage will help stimulate the economy and create jobs, as well as contribute to better health and productivity. But financing sources in out-years are needed to ensure long-term fiscal soundness. Savings offsets are possible from payment and system reforms – these investments and changes should receive priority attention in the first phase of health reform as their impact is greater in out-years.

However, other sources of long-term financing will need to be identified and assessed, ranging from higher taxes on high income households to redirection of funds "within the system" such as current indirect subsidies for care of the uninsured or institution of a provider assessment to recoup a portion of the enhanced revenue and reduce bad debt resulting from coverage of the uninsured. Taxes on harmful health products, including sugared soft drinks, caloric dense foods, and tobacco products, should be among the financing options considered.

While the initial costs of comprehensive action may be daunting, the country simply cannot afford to continue on its current path. Coverage, payment, and delivery reform now will reap savings in the long term – these actions, taken together, have the potential to bend the curve of our unsustainable spending on health and generate system-wide savings of at least $1.6 trillion over 10 years. The time has come for federal leaders to invest in American health security and put the nation on a path to a high performance health system.

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In the Nov. 17 New England Journal of Medicine, Blumenthal co-wrote an article about the role of President Lyndon Johnson in the creation of Medicare and Medicaid. Blumenthal wrote that Johnson knew the programs would be expensive, but that he chose to ignore the cost because of the importance of health care. Here is an excerpt from the article:

The expansion of health care to large populations is expensive, and presidents may need to quiet their inner economists. Johnson decided, in effect, to expand coverage now and worry about how to afford it later. Accurate cost estimates might very well have sunk Medicare. In fact, this generalization holds across every administration from Harry Truman to George W. Bush. Major expansions of health care coverage rarely fit the budget and generally drew cautions (and often alarms) from the economic team. Of course, under current federal budgetary circumstances, managing the economics of health care reform may be more difficult than ever before.