Obamacare Is Not Entitlement Reform
The recent health-care debate brought to the surface a surprising consensus about what must change to get a better handle on costs: Medicare.


James C. Capretta

White House budget director Peter Orszag stated in February 2009 that “health-care reform is entitlement reform.” As Mr. Orszag prepares to leave the White House this month, it’s clear the health-care-overhaul law that President Obama signed in March falls far short of what was promised. Instead of solving our entitlement crisis, it makes matters worse.

While our enormous current deficit is mostly attributable to the severe housing and financial crises and the deep recession that then ensued, the large deficits and debt projected for the coming years also reflect increased budgetary pressure from the rapid growth in federal entitlement spending.

The Congressional Budget Office last year projected that spending on the “Big Three” entitlements — Social Security, Medicare, and Medicaid — would reach 11.4 percent of GDP in 2020, or almost triple what it was in 1970. The growth in entitlement spending has been fueled by rapidly rising per capita health costs and a growing elderly population.

Entitlement-spending growth will accelerate in the coming years as the baby-boom generation enters its retirement years and health spending continues to escalate rapidly. The jump in entitlement spending over just the next two decades — 4.6 percent of GDP — is roughly equivalent to adding a program the size of Social Security to the budget.

The health plan was never aimed at addressing the problem of population aging. But the president did promise that it would begin to “bend the cost curve” of health care.

In that regard, the recent health-care debate brought to the surface a surprising consensus about what must change to get a better handle on costs: Medicare.

For many years, most Democrats believed Medicare was an innocent bystander to the problem, something like a rail car hooked onto a runaway freight train. But now many Democrats realize that Medicare is the engine pulling the health-care train down the track at an accelerating and dangerous pace.

American health care has many virtues, but it is highly inefficient because it is so fragmented. Physicians, hospitals, clinics, labs, and pharmacies are all financially independent of one another. They all send separate bills when they render services; what’s worse, there’s very little coordination among them when they are taking care of patients, which leads to a disastrous level of duplicative services and low-quality care.

At the heart of this dysfunction is Medicare — and, more precisely, Medicare’s dominant fee-for-service (FFS) insurance structure.


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