Ambitious Health Care Reform Can Lead to Lower Budget Deficits

Today, President Obama is taking another step toward achieving needed
health care reform by hosting a White House summit on health care. At
the summit on fiscal responsibility last week, President Obama
explicitly put forward the view that the nation's budget deficit
problem is a health care problem.

As OMB Director Peter Orszag has repeatedly pointed out, the
projections of enormous long-term deficits are driven almost entirely
by projections of exploding private sector health care costs. If health
care costs rise only due to the aging of the population, and otherwise
grow at the rate of per capita income, the long-term deficit problem is
very manageable.

It will be politically difficult to restrain
health care costs to this extent, but this is something that almost
every other country wealthy country has managed to accomplish. If the
United States could reform its health care system to be as
cost-efficient as any of the 30 countries with longer life expectancies
than ours, we would be projecting enormous budget surpluses rather than
deficits.

Click here to see a larger image.

Yellow line: Baseline U.S. budget deficit projection from the non-partisan CBO. Blue line: CBO's "Low Health Care Cost" projection (assumes that health care costs in the U.S. rise only due to the aging of the population, but otherwise stay even with per capita GDP growth) Red line: Projected budget deficit if the U.S. had the same per person health care costs as the OECD high-income countries (all of which enjoy longer life expectancies than the U.S.)

During his election campaign, President Obama
proposed a plan that centered on allowing workers and employers the
option to buy into a Medicare-type public plan. This sort of system
offers the opportunity to achieve substantial long-term savings that
will give the country a competitive health care system.

If President Obama can push through a plan
similar to what he outlined in the campaign, it will both solve the
"entitlement" problem and help restore the competitiveness of U.S.
manufacturing, in addition to extending coverage to the uninsured.