The Progressive Way To Make Health Care Reform Cheap

The greatest irony of the entire health care reform battle is that it is the left wing progressives that are the ones pushing for reforms that would save the government huge amounts of money. The “centrist” and “fiscal conservative” Democrats are doing everything to make reform more expensive for the federal government. It is the Blue Dogs in the House and conservative Democrats like Baucus and Conrad who are killing almost every cost saving idea.

If the left hopes to take back the health care debate, I recommend that over the August recess they put together a series of amendments that would slash the cost of reform in half. Show that progressive reform is the only true fiscally conservative reform.

Public Option Savings

The Blue Dogs in the House have tried to water down the public option until it becomes useless. Baucus and Conrad are working closely with Republicans to kill the idea. A robust public plan or a Medicare buy in option could reduce the cost of health care reform by around 20%.

The Blue Dogs want the public plan to not be able to pay rates based on Medicare's payment structure and allow doctors accepting Medicare patients to opt out of the public plan. We know from a letter written by the Congressional Progressive Caucus that the CBO projected the effect of allowing Medicare doctors to opt out would increase the cost of reform by roughly $91 billion.

The original House public plan would pay Medicare rates plus 5%. The Blue Dogs want to not allow the public plan to take advantage of Medicare's payment structure. According to Politico:

allowing doctors and other health care providers to negotiate rates with the government under a public option would cost the government about $60 billion, according to a preliminary CBO estimate.

Based on previous CBO estimates, I can conclude that if the public plan paid straight Medicare rates it should save around an additional $30 billion. That means allowing people on the Exchange to buy into Medicare or a public plan directly modeled off of Medicare would reduce the cost of reform by about $180 billion.

The progressives would also like a robust pubic option to be available to all individuals and businesses. Currently it is purposely restricted to only the Exchange. We know that opening a robust public option to all would increase workers' wages and federal tax revenue. The CBO wrote:

if more employers … purchased somewhat less expensive insurance via the public plan, the principal effect on federal deficits is that those employers would end up increasing their workers’ taxable compensation and thereby would generate slightly higher tax revenues.

Without a full CBO analysis I can't properly predict how much new tax revenue would be generated by allowing all businesses and individuals the choice of a robust public plan or having the ability to buy into Medicare. My extremely rough calculations is that it would generate around $50 billion in new taxes over the ten year window.

Drug Savings

The House bill would fix one of the greatest taxpayer rip offs in the past decade. When Medicare Part D passed it took away the Medicaid drug benefits for the elderly poor who are duel eligible for Medicare and Medicaid. As the result, the government now pays 20% more to provide those individuals with drug benefits. Fixing that give away to the drug industry would save as much as $86 billion. Last Friday the House Energy and Commerce Committee also passed an amendment which would allow the government to directly negotiate drug prices. (I have not yet seen a CBO analysis of the potential savings from this change) Not surprisingly Senator Baucus made a “deal” with the drug lobby and refuses to adopt either of these cost saving proposals.

Another progressive idea to reduce the cost of health care would be to eliminate the tax free status of direct-to-consumer pharmaceutical advertising. Not only did the drug industry spend $4.8 billion on advertising direct-to-consumer, many experts believe that the practices drive up the cost of health care by encouraging unneeded and expensive medication. Taxing these ads at the corporate tax rate (35%) should net around $20 billion in taxes to help pay for reform. It should have an even greater effect by reducing the overall cost of our health care system.

Drug reimportation is a progressive idea which is also likely to be left out of health care reform. Although the idea received a lot of attention in the past. A 2004 CBO report projected that it would reduce total drug spending by $40 billion over ten years.

These ideas are only a few of the progressive proposals to reduce the cost of health care reform and none of them will be considered by Senator Baucus' bipartisan “coalition of the willing.” If you added a robust public plan (and/or Medicare buy in) open to all, it should reduce the price of his reform bill by around $230 billion. The drug reforms I outlined should score as saving at least an additional $100 billion. (I suspect that they CBO would score them as saving substantially more.) If the congressional progressives dedicated their staffs to finding cost cutting solutions they should be able to find at least another hundred billion in savings.

The progressive solutions I described should reduce the cost of Baucus' plan by a third. That would allow the bill the be paid for almost exclusively through savings in current programs and nearly eliminate the need for new taxes.

If the congressional progressives want to bring health care reform back to the left, they should spend August coming up with progressive reforms to save money. Publicly present these reforms to the “conservatives” in the party along with the CBO scoring. Force them to public defend their desire to protect the health industries at a massive cost to the taxpayers.