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Overview: Money Isn’t Everything — It’s the Only Thing

Health care reform is a veritable financial mine field, with everyone involved in the debate expressing concerns about the costs and effects of reform on the federal deficit. This presents a major obstacle for lawmakers who want to overhaul the system this year, as Republicans — and many fiscally conservative Democrats — have blasted various reform proposals.

President Barack Obama argues that the current health care system needs reform as costs continue to grow — and most Members of Congress agree.

“Our health care system is simply unsustainable,” Senate Finance Chairman Max Baucus (D-Mont.) said last week, adding that the costs of health care are “breaking the bank” for federal and state government, as well as for individuals.

But it is the question of how reform will be paid for — and by whom — that is at the center of the legislative firestorm. Whether the argument can be resolved in the weeks ahead will determine whether a reform bill passes or whether it collapses like previous legislative efforts to provide universal health care coverage.

Republicans argue that health care reform will increase the $9 trillion federal deficit. Such concerns also led fiscally conservative Blue Dog Democrats to hold up legislation in the House until their concerns were addressed. However, many Democrats and numerous analysts argue that reform will not increase the deficit.

“The rising deficit in the short term has nothing to do with health reform,” said Thomas Mann of the Brookings Institution, a veteran observer of government. “It is a result of inherited deficits from the previous administration and a severe economic downturn. Health reform is the solution to our long-term fiscal problems, not the cause.” Mann also noted that Obama has pledged not to sign any bill that is not deficit-neutral.

The House Ways and Means and the Senate Finance panels are responsible for devising ways to finance reform. They have chosen to focus on cutting down on waste, fraud and abuse in Medicare and Medicaid, increasing taxes on the wealthy and on expensive health insurance plans, and implementing new industry taxes.

The Ways and Means legislation is expected to cost roughly $1 trillion over 10 years and seeks to offset most of this cost through a surtax on wealthy individuals. The Finance bill would cost about $856 billion over 10 years and would be fully paid for through a variety of revenue raisers and spending reductions.

The Finance language includes more than $200 billion from a tax on more expensive health insurance plans and $500 billion in cuts to Medicare and Medicaid. The Finance plan would also assess nearly $13 billion annually in taxes on pharmaceutical companies, health insurers, medical device manufacturers and clinical laboratories.

As the debate moves forward, Democrats will argue that insurance companies and other industry sectors should shoulder some of the burden of health care reform through tax increases and new taxes.

Many on K Street share the same sentiment. William Pierce, a former Republican aide and a senior vice president at the public affairs firm APCO Worldwide, said the Finance bill has “spread the pain out among the various industries, which each will complain about, but by not targeting one or just a couple, it is hard to argue the fees/taxes are unfair.”

But Republicans argue that these taxes will be passed onto individuals, raising their already high health care costs through higher insurance premiums and medical bills.

However, Rep. Doris Matsui (D-Calif.), a member of the Energy and Commerce Committee, one of the many panels involved in drafting health care legislation, rejected this reasoning. “The cost of inaction has been what has been driving the health care insurance costs up and up each and every year,” she said, echoing the sentiments of many of her fellow Democrats.

Democrats also rely heavily on cuts to Medicare and Medicaid to pay for reform. The majority argues that many of these cuts come from overpaid privately run Medicare Advantage plans. But Republicans and even some left-leaning activists are not convinced.

Sen. John Cornyn (R-Texas) said cutting as much as $500 billion from Medicare would only hasten the program’s demise. “Democrats not only want to create new Washington entitlements, they want to accelerate Medicare’s bankruptcy in 2017 by using it to pay for this bill,” he said. “How is that logical?”

A health analyst and former Democratic Hill staffer who did not want to be named was also skeptical, criticizing plans such as a federal panel that can automatically cut Medicare rates. This “will just cause distortions, destroy Medicare and leave the most inflationary part of the health care system — the private sector — free to inflate,” the analyst said.

The Brooking Institution’s William Galston said these recommended cuts may not be politically feasible. “I doubt many seniors will believe that these cuts will affect only providers, and I find it difficult to believe that political realities will permit cuts of this magnitude, however much sense they may make in strictly policy terms,” he said.

There has, however, been a more positive response to lawmakers’ efforts to save money by curbing waste, fraud and abuse in Medicare and Medicaid.

Douglas Holtz-Eakin, Congressional Budget Office director during the Bush administration, applauded the idea, noting that Medicare fraud alone costs the government upward of $60 billion per year. A Senate GOP aide said that when Medicaid is factored in, this figure jumps to around $80 billion.

However, Rep. Darrell Issa (R-Calif.), ranking member of the House Oversight and Government Reform Committee, and many other Republicans do not believe Democrats will actually follow through on their pledge to reduce waste, fraud and abuse, especially because the majority is considering a public insurance option.

“It’s one thing to focus solely on addressing waste, fraud and abuse, but when the plan is to also replace the current system with a government-run entity that has no track record for efficiency — the American people are naturally skeptical about the promises to root out waste and address fraud,” Issa spokesman Kurt Bardella said.

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