Health Care Reform - How Much Will It Cost and Who Will Pay?

Reforming and running the nation's health care system may cost a trillion dollars. So, who's going to pay?

Political Risk

Reforming the country's health care system is one of the most challenging domestic legislative efforts any administration can tackle. Many have tried and failed since Harry Truman. For both parties, the political gamble could not be riskier. And for the first time, because of skyrocketing costs and a big drag on the economy, doing nothing might be even more politically dangerous than trying and failing.

Any health care bill that reaches the president's desk has two absolute objectives. First, it must control costs. For years the country's health care spending curve has sloped up, and in recent years more steeply skyward. The new system must bend the spending curve down. Once in place, the new system must run efficiently with an operating cost that is significantly less our current health care system. Secondly, it must be paid for. Overhauling the system will have its own cost that will be spread out over ten years. Though no one knows what a new health care system will cost to get running, a plan proposed by the Senate Health Committee to overhaul the system would cost $1 trillion over ten years, according to the Congressional Budget Office. Paying for this reform will require a redistribution of existing dollars in the system and an increase in taxes.

Spending Existing Health Care Dollars More Wisely

Covering the costs to change the country's health care system will include several measures. First and foremost will be the reallocating of existing dollars already being spent in the system today. Every year our health care spending goes up. In 2006, the United States spent over $2.2 trillion dollars. Last year, the U.S. spent over $2.5 trillion. The White House says they have found hundreds of billions of dollars worth of savings to help finance health care reform. President Obama gave the example of how we currently subsidize private insurance companies $177 billion over ten years for Medicare Advantage. According to the president, there is little indication that people are healthier using that program rather than regular Medicare. The president also expects $75 billion in savings over 10 years with lower prices for prescription drugs.

The Public Plan

The most politically contentious cost-saving measure would be some form of a government run public health care option. Though not the sweeping single-payer health care plan many on the left would like, this public plan would be one of many options in a marketplace, or "exchange", with several other plans, including private insurers. This system would be essentially the same as that offered to federal employees. A government run health care plan might have an administrative cost of 2 percent of it's overall operating expense, and such a public plan would not need to make a profit. Private insurance companies have administrative costs that are as much as 10 to 40 percent of their operating budget. Republicans don't like a public health care option because they contend that it could drive private insurers out of business.

Covering the Uninsured

Covering every American who wants coverage is a key component to reducing costs consumers pay for health insurance and for reducing federal spending. An estimated 45.7 million people in the United States, including 8 million children, have no health insurance at all. An additional 25 million are under-insured. Those paying for private insurance cover the costs through higher premiums when uninsured consumers require medical attention. Additionally, the federal government / taxpayers pay hospitals to cover the costs of treating the uninsured. Mr. Obama said that the government could save $200 billion over 10 years by cutting such hospital payments as more people gained coverage. Struggling medical institutions around the country are already fighting back against this proposal.

Higher Taxes and New Taxes

To cover the cost of getting the new health care system up and running, the Obama administration is proposing a mix of new taxes along with raising the rate of some existing taxes. Taxpayers who earn more than $250,000 a year could see a limit to the value of itemized tax deductions, raising an estimated $318 billion over the next decade. Opponents fear this proposal could reduce contributions to charitable organizations.

Taxing workers for some employer-provided high-value health care plans is also being discussed - a change Mr. Obama opposed in his presidential campaign, but is now considering. This proposal might tax a portion of health benefits worth more than a specified limit. For example, one option might set the limit at $17,240 for family coverage, and $6,800 for individuals. The portion of plan's value over those amounts would be taxed. By comparison, the Blue Cross Blue Shield Standard option offered to federal employees costs about $13,400 for family coverage and $5,900 for individuals.

Another tax on the table is a value added tax, similar to sales taxes many states collect, and common in other countries. This tax would be collected from businesses that produce or sell consumer goods. Economists say a 5 percent value added tax could have raised $285 billion last year. However, a value added tax could break Mr. Obama's campaign pledge not to raise taxes on households with incomes under $250,000 a year.

To help fund the reform, House Democrats are also considering raising the taxes on soft drinks and alcohol.

Employer Mandate

Key House and Senate Democrats endorse the proposal of an employer mandate, which would require employers to either cover their workers or pay into a fund for the uninsured. Difficult to implement during a recession, this requirement could be delayed until the economy recovers. Small businesses would be exempt or receive federal subsidies to help cover the costs of providing insurance.

Drawing from Other Models

Fortunately, lawmakers do not have to start from scratch when reforming this country's health care system. Other countries offer models of health care coverage that deliver better results in some ways than the U.S. system, while costing much less. Every person in the United States spends an average of $6,700 on health care. In Canada, medical costs average $3,700 per person; in France, the average cost is $3, 500 per person; and in the United Kingdom, only $2,750 per person is spent. Certainly, some of the medical care in the United States is better than in these countries, but data clearly demonstrates not always. For example, the United States ranks 50th in life expectancy, and a shocking 180th in infant mortality rates. Naturally, legislators would never wholly adopt another country's health care system. Some key components, however, could offer possibilities for reforming health care in the U.S. to make it much less costly, provide better care, and cover everyone.

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