Robert Reischauer, president of Urban Institute, answers five questions about what most imperils our financial system and how essential health care reform is to reining in our massive federal deficits. In the Washington Post, Reischauer said we must act soon to show we're serious about fiscal responsibility or we could face a catastrophic economic collapse.
September 10, 2009
1. What is the greatest risk to our financial system?
The greatest risk is that our creditors will lose faith in either our ability or our willingness to put our fiscal house in order—that is, to reduce our deficit and reduce our need to borrow from abroad. If our creditors begin to lose faith in our economy's long-run viability, we'll see interest rates or inflation rise, and either would be disastrous for the average American.
"To try to rein in the federal deficit without fundamentally changing government health care programs is futile."
We might experience economy-wide general inflation because the Federal Reserve is obligated to expand the money supply to help finance our deficits. Price hikes for imported products like clothing, cars, and TVs and iPods and other high-tech goods could be very large as the value of the dollar starts depreciating.
Alternatively, interest rates might have to rise significantly to attract the foreign capital needed to finance the deficit. That would slow the economy, possibly pushing it into a recession.
Whichever scenario unfolds, Congress and the president would likely have to act quickly to raise taxes and pare back government spending considerably in programs that Americans count on. Abrupt adjustments would cause a lot of pain.
Many people think we'll get to this point 10 or 15 years from now. I think it'll happen sooner. If we don't set a credible path toward lower deficits within the next two to five years, we’ll be running unacceptable risks.
2. What do we need to do prevent this dark scenario from happening?
The only way out is to raise taxes and slow down the growth of federal spending. Do we have to start these measures now or next year? No. But we do have to enact legislation soon that will start gradually increasing taxes and slowing the growth in spending by 2012 or 2013, when the economy is on a firmer footing. We need to assure creditors, and financial markets more generally, that we have the resolve to do this. It can be done in a very measured way over a decade or more, but the legislation has to be put in place in the next one to three years. If we keep kicking the can down the road, we run a higher risk each year of a catastrophic fiscal failure.
3. The latest long-term budget deficit estimates have some lawmakers questioning if now is the right time to tackle health care reform. Are they competing priorities? Or is reforming health care a part of closing the budget gap?
Because the growth of government health spending is such a major contributor to our future fiscal imbalance, we have to make health reform part of our deficit reduction plan. To try to rein in the federal deficit without fundamentally changing government health care programs is futile. Once you've said that, you have to admit that we can't significantly reform our federal health care programs without changing how health care is paid for and delivered for those who aren't in government-sponsored health programs.
4. What is the most important thing to get right about health care reform?
The cornerstone of successful reform will be changing the incentive structure so that we're paying for what we want to buy—improved health. Right now, we pay for individual services—procedures, visits, drugs, devices, etc. These purchases may improve health a lot, a little bit, or not at all—some can even do harm, yet we still pay for them. Changes to the payment system will gradually change the way we organize and deliver care. We'll have better health care coordination and resources will be used more efficiently.
We need to start by bundling the individual payments associated with an episode of care and then move toward capitated payments. Under this framework, a health plan or group of providers would receive a set, risk-adjusted monthly payment for taking responsibility for an individual's health. The payment would stay the same, regardless of the number of tests, visits, or procedures the individual received. To ensure the plan doesn't stint on care, a performance or quality bonus would be paid at the end of the year.
5. Do we need a public plan to bring down costs? And should cost control and expanded coverage be tackled separately?
A public plan isn't absolutely necessary to moderate the growth of health care spending, but it could impose competitive pressures on private plans. You can also bring down costs by imposing stringent regulations on the private sector that constrain how the marketplace works. But a public plan would be a straightforward and efficient substitute for many of these regulations.
Politically, it's unavoidable that we deal with coverage and cost control together. If we try to deal with cost control first, the coverage problem will get worse. If we just expanded access to address coverage, the cost problem would get worse and it'd be harder to adopt the cost-control policies we need in the long run. We need to address both problems at the same time and in a coordinated way.
Latest Research
