Why Congress is stalling Obama's health plan

The $1 trillion price tag has to come from somebody's pockets -- and legislators aren't ready to confront those details.

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NEW YORK (Fortune) -- President Obama's rush to rescue his health-care plan is coming just in time, because its critics are starting to give it a bad rap.

On Monday, the Republican National Committee unveiled an ad that lumps the President's health-care reform efforts with the bank and auto bailouts. As forlorn looking children stare back at the camera, a voice intones that Obama's plan is simply a "massive spending experiment" -- yet another risky, big-ticket item that will leave a burden on future generations. In short, critics say, it's all getting too expensive.

Obama never promised that a lofty goal like providing affordable health care to all Americans wouldn't cost anything -- he pledged only that the reform will pay for itself, meaning it won't deepen the federal deficit.

The President' pitch. Tonight at his news conference, Obama will have to restate the case for why increased spending will be worth it. At last count, the Democrats' health-care reforms will cost at least $1 trillion for the first 10 years. Obama has argued that over the longer run, the changes will lower health-care spending so it stops being a giant drag on the country's economic resources. The latter is what he calls "bending the curve."

What Congress is debating with increasing intensity, up against Obama's hope of getting both houses of Congress to pass a measure before their August recess, is how to cover this $1 trillion price tag. Opponents of the emerging plans were emboldened last week by a report from the Congressional Budget Office that showed the plans would not accomplish their stated goal of significantly reducing federal health spending. However, the plans that Congress handed Douglas Elmendorf, the head of the CBO, have yet to include some of the bolder proposals that will curb costs.

Finding any savings to pay for the reforms is bound to anger someone, which is why Congress has yet to confront all the details about where to cut. "Waste is income for other people," says Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "When you find the waste -- and there's much, clearly -- that's all income for someone, whether it's the drug companies, the medical supply industry, doctors who might be paid too much for some procedures. Every single one has someone behind it who will fight to their last breath to keep Congress from taking them away."

Funding quandary. The Democrats can account for about half the $1 trillion cost with policies like reducing subsidies to private insurers who serve Medicare patients. The last stretch, however, will probably entail tax increases. Towards this end, House Democrats last week proposed a surtax of as much as 5.4% on income above $350,000 a year.

The idea is suffering a backlash, not just on behalf of high-income taxpayers but also on philosophical grounds. "We can't fund a broad-based policy with a targeted tax," says William Gale, director of the Economic Studies Program at the Brookings Institution. "It doesn't make sense, and it's bad health-care policy." Gale adds that a surtax on the rich is politically unstable, since the moment the Republicans take over Congress again, they'll probably roll back the taxes, leaving health care unfunded. (There are also other reasons why taxing the rich exclusively might be less than ideal.)

Gale, along with many health-care experts, points instead to limiting tax exclusion for employer-provided health benefits, since it not only helps pay for the reform but also discourages wasteful spending. Unions strongly oppose the measure, and Obama has signaled that he backs them, but there could still be room for a deal in which the cap is kept very high and would affect only a small portion of the workforce.

Blue Dog dilemma. Conservative Democrats are especially leery of the revenue-raising ideas -- many are freshman who don't want to be tarred with the "tax and spend" brush. These Democrats, known as the Blue Dogs, have triggered speculation that if they don't move with their party leadership, they could sink the whole effort. However, dissent doesn't always spell doom when it comes to the legislative process. As long as there's a bottom-line conviction from these Democrats that the status quo of the health-care system is unsustainable, and a commitment to finding cost savings, they may stay on board.

"I wouldn't read too much into one day's events. There are going to be bumps along the road that may require us to turn around and reprogram our GPS," says Rep. Gerald Connolly of Virginia, who is president of the freshman class and opposes taxing employee health benefits to help pay for reform. He suggests extracting more concessions from the pharmaceutical and insurance industries instead.

"One of the advantages of having a system that's as inefficient as ours," says Baker, "is that over the next decade, we're going to spend somewhere around $30 trillion on health care. The idea that you have to dig up $200 billion to $300 billion in savings doesn't sound like that hard a task to make [reform] deficit neutral."

As Congress hammers out the details and Obama steps into the fray, what looks like a bill on the verge of failure may turn out to be legislative business as usual -- it's just inherently a messy process. As Sen. Chris Dodd (D-Conn.) recently said on ABC's "This Week," "If this were easy, it would have been done decades ago." To top of page

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