Editor’s Note: The following post by Rep. Paul Ryan (R-WI) comments on the projections of national health spending from 2007 through 2017, published today by Sean Keehan and his colleagues at the Centers for Medicare and Medicaid Services Office of the Actuary as a Health Affairs Web Exclusive.
The projection that health care spending will reach nearly 20 percent of gross domestic product (GDP) within the next ten years confirms what every leading health care economist is saying: health care spending is out of control, and the time for action is now. But these are not signs that the health care market has failed. In fact – and it is crucial to understand this – they are the predictable results of vast distortions imposed on the market over decades. The government is the single greatest contributor to this problem by the nature of the tax code and the structure of health care entitlement spending; and these can be corrected with fundamental changes in public policy to restore the market’s vitality.
One key problem lies in the federal tax code – specifically, the federal tax exclusion for employer-provided coverage. It is this policy that causes most Americans to rely on their employers for health coverage. But small businesses frequently cannot afford group insurance for their employees, and large companies have tended to restrict the choices of employee coverage on the false premise that such restrictions would restrain cost growth.
This tax policy also undermines the health care market by hiding the true cost of insurance from people covered by it. The current arrangement increases demand for covered medical services and more expensive health plans and creates a bias against millions of unemployed, or self-employed, Americans. Worst of all, the policy creates a third-party purchaser between the patient and the doctor.
Another major distortion in the market is the huge amount of spending the government pumps into Medicare and Medicaid. As the projections show, about half of the $2.4 trillion we spend on all health care nationally comes from taxpayer dollars. And when government pours that much money into any sector, prices go up. The cost of private insurance is also affected, since these programs create benchmarks for private plans.
In other words, Medicare and Medicaid are not simply the victims of rising health costs; they are among the causes. This is why any successful health care reform will require reforming the government’s programs as well.
The point is this: the key to both controlling health care costs and expanding coverage lies in removing the distortions in the market. Instead of further consolidating power over Americans’ health care in a one-size-fits-all system run out of Washington, D.C., we should rely on reforms that can expand health care coverage, improve its quality, and hold down its costs. That means several things, including:
Personal Ownership. Health insurance should be owned by the people who use it – and we can accomplish this by shifting the current tax benefit from employers to individuals and families. We can debate whether it should be a deduction or a credit or what have you – but the point is that it should be changed to promote personal ownership.
Transparency. One of the big problems in health care is that prices are opaque. In the Milwaukee area you can pay $100,000 for a bypass operation at one hospital, and just $48,000 for the same procedure at another hospital. But most patients – and sometimes even the doctors – don’t know this.
Entitlement Reform. Something that’s missing from nearly every major health reform plan being discussed is that they don’t include fundamental reform of Medicare and Medicaid. Unless we reform those programs, and moderate their unsustainable spending growth, they will continue adding to medical inflation – and health care reform itself will fail.
For both Democrats and Republicans who have looked at this issue carefully, there is broad agreement on the problem. Unfortunately, there is no agreement on solutions, and the challenge to address this problem grows exponentially each year. We need to come together, both Democrats and Republicans, with a sustained effort of both parties working together over time. It’s a big challenge, and a complex one, but we can succeed if we are willing to address it realistically, comprehensively, and soon.