If health reform costs too much, should a ‘fail-safe’ kick in?

Obama has called for a mechanism that would trigger budget slashing if the health overhaul adds to the federal deficit.

Jason Reed/Reuters
President Barack Obama delivers a speech on healthcare before a joint session of Congress in Washington, September 9.

Could automatic cost cutting keep healthcare reform from adding to the deficit?

That question comes up because President Obama, in his speech to Congress on Wednesday, called for healthcare-reform legislation to include a fail-safe – a mechanism that would trigger budget slashing if the overhaul added "one dime" (Mr. Obama's words) to Uncle Sam's red ink.

The general idea isn't a bad one, especially given the uncertainty of long-term cost estimates, say some budget experts.

But the mechanism needs to be well designed and robust. Otherwise, it won't work.

"We've been burned on triggers before. They get ignored, waived, and sometimes eliminated altogether," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, in a statement on the group's website.

According to a White House description of the president's healthcare-reform proposals, under the trigger idea, the administration would be required to put forth further budget cuts if savings promised by healthcare reform don't materialize and the effort begins to add to the federal deficit.

From a political point of view, the idea is a "Plan B" that could help convince lawmakers worried about adding vast new US obligations to the national budget at a time when deficits already are historically large.

For a trigger to work, medical spending would have to be closely monitored. And at a predetermined level of spending defined as excess, reductions would be triggered for the following year.

A trigger could be in place, waiting to work, by 2015, according to David Cutler, a Harvard University economist who has promoted the idea.

Among the possible automatic cuts could be further limits on Medicare payments, writes Mr. Cutler in an analysis of the finance of healthcare reform for the Center for American Progress, a Washington think tank.

The rate of growth of government subsidies to help low-income taxpayers buy health insurance could be capped. Or some other, yet-to-be-determined tax change could be made.

Completely automatic cost-cutting responses might be "problematic," writes Cutler with co-author Judy Feder, a professor of public policy at the Georgetown Public Policy Institute.

"Having flexibility over which options to pursue would allow targeted solutions to be pursued and would enhance effectiveness," according to the Cutler report.

A way to accomplish this, the authors say, might be to have both a set of proposed policy actions and a commission with the authority to select among them, subject to congressional disapproval.

But that's just the problem, say critics: If cuts cause pain, Congress is highly likely to overrule them.

That is why the Committee for a Responsible Federal Budget believes the fail-safe mechanism should in fact be a "hard" trigger and should be in force for more than a decade to come.

"A trigger should be part of a fiscally responsible health care plan, but it's not a cure-all," according to Ms. MacGuineas. "Politicians are going to have to make some hard choices if they want to slow health care cost growth and bring down our burgeoning deficit."

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