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President Donald Trump and Secretary of Health and Human Services Alex Azar deliver remarks about prescription drug prices at the White House on May 11, 2018. Photo by Jonathan Ernst/Reuters

Column: A financial reality check on the push for health care reform

Journalist Philip Moeller answers your questions about health, aging, and retirement. Phil is the author of the book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.


Recent Congressional Budget Office reports on single-payer health care, drug pricing and broader federal subsidies are injecting reality into the frenzied and often breathless discussions about reforming the nation’s health care system.

The CBO’s official role is to be the scorekeeper for the financial impact of our current and proposed federal laws. This is often a thankless task that exposes the agency to fiercely partisan attacks that, in recent years, have tended to come from conservatives claiming the agency is really a shill for Democrats and that its work is a manifesto for some kind of socialist takeover of America.

The CBO makes mistakes, as does every other institution on the planet. But to claim any consistent bias makes me wonder if critics understand the CBO’s mission or operating rules.

Here’s a closer look at the CBO’s three reports.

The cost of single-payer health care

Last week, the agency issued a long-awaited report on single-payer health plans, also known as “Medicare for All.” In less publicized, but no less meaningful work, it also published reports on the financial impact of important changes in Medicare drug pricing rules and a look at federal spending and subsidies on health care for all people under the age of 65.

In what I think was an inspired decision, the CBO single-payer report does not include a single number indicating what a plan might cost. Some studies have estimated that federal outlays for such a proposal would exceed $30 trillion over 10 years. Of course, we spent $3.5 trillion on health care in 2017, so if the feds literally took over all of that, perhaps this estimated single-payer price tag would not be a bad deal.

We don’t know what the “best” single-payer plan for the United States would or should look like. This is the point of the CBO report. The report does not use dramatic language to explain its findings but the implications certainly are. For example, it presents eight crucial questions that lawmakers must address:

How would the government administer a single-payer health plan?

Who would be eligible for the plan, and what benefits would it cover?

What cost sharing, if any, would the plan require?

What role, if any, would private insurance and other public programs have?

Which providers would be allowed to participate, and who would own the hospitals and employ the providers?

How would the single-payer system set provider payment rates and purchase prescription drugs?

How would the single-payer system contain health care costs?

How would the system be financed?

Answering any one of these questions could tie health care experts and policymakers in knots for a long time. Thinking about the task of addressing all of them in a new set of rules, which would directly reshape nearly a fifth of the U.S. economy, is beyond daunting. Remember that any such rules need to include detailed operating instructions as well. You do not want to mess with health care without a big user manual.

If there were no figures in the single-payer report, you can see more than you’d wish to in the other two that focus on Medicare drug pricing rules and federal spending and subsidies. In combination, the sobering message is that any sizable change to health care would have enormous financial impacts –intended as well as unintended.

What government would pay to reduce drug prices

The Centers for Medicare & Medicaid Services (CMS) recently proposed a new rule for drug prices in response to criticism over high drug prices and President Donald Trump’s promise to lower them.

Today, a shell game is being played by drug companies, pharmacy benefit managers (PBMs) and health insurers. In way over-simplified terms, it involves drug companies setting very high prices and then negotiating big price rebates as a business-development lure to have their drugs sold by PBMs and included in health-plan drug formularies.

In the process, PBMs and health plans can make out like bandits. This game has not, however, reduced consumer prices but contributed to ever-escalating prices that have little connection to drug-company costs, even allowing for healthy financial incentives to discover new life-saving drugs.

The proposed CMS rule would ban these price rebates and require that price discounts offered by drug companies be reflected in lower consumer prices. Good deal, right?

Well, maybe not. The CBO said that the impact of these price reductions would actually raise government spending on Medicare by $170 billion over the decade beginning in 2020.

Yes, some consumers might see lower prices. And health insurers could reflect price discounts in lower premiums. But the way Medicare’s Part D drug subsidies are designed, some consumers would pay more for their drugs.

The CBO’s projected impact is, by the way, less than CMS’s own estimate that the change would boost federal spending by $196 billion over the coming decade.

Of course, neither $177 billion nor $196 billion might seem like big numbers compared with the truly massive size of the total federal budget. But at some point, the nation’s ability to afford a major government role in health spending must be addressed.

Federal health care subsidies

Here, the third CBO report provides helpful if sobering information on the current scale of federal health care subsidies under the system we already have. These subsidies in part reflect the Faustian bargain we’ve made with the health-care industry.

Uncle Sam pays enormous subsidies that help consumers afford health care but also support big profits for drug companies, health insurers, and medical equipment companies. Add hospitals and doctors to that group as well. Increasingly, both of these groups are more apt to be run by business managers than caregivers, and they are busily turning themselves into ever-larger business practices that look and act a lot like local monopolies.

Here’s a brief look, culled from data in the CBO report, of the $737 billion in federal subsidies for health insurance provided to people under the age of 65. The employer insurance subsidy represents the fact that employer and employee insurance premiums are tax deductible, and thus reduce federal revenues.

This figure, of course, does not include the even larger federal spending totals for older Americans on Medicare and Medicaid (the latter of which is also supported by huge state spending totals). All told, the government foots more than 50 percent of the nation’s health spending. Imagine the outcry if consumers had to pay these costs in full.

Even if our big health care businesses wanted major reforms, the financial and oversight challenges would be enormous. Of course, these businesses are not likely to support changes that threaten the viability of their business models. This is a major reason why the U.S. price tag for health exceeds $3.5 trillion – double the per-capita spending in other advanced economies – and why we get health outcomes that badly trail those in nations that spend only a fraction as much on care.

We will need more CBO reports and many more adults in the room to move ahead with the large-scale changes that health experts say are needed to boost coverage and health outcomes for Americans without bankrupting us in our roles as consumers and taxpayers.

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