The Wonk Room

Obama’s Letter To Baucus/Kennedy: Use Savings From Within The System To Finance Reform

At first glance, I thought that blog coverage of the President’s letter to Sens. Max Baucus (D-MT) and Ted Kennedy (D-MA) seemed a bit overstated. While Obama may have “doubled down” on the public plan, he didn’t exactly endorse a muscular option. His support for Sen. John Rockefeller’ s (D-WV) proposal to give teeth to MedPAC’s payment reform recommendations is significant but not earth shattering. To me, the letter read as an effort to distance the White House, at least temporarily, from Baucus’ recent suggestion that the president supported capping the employer-sponsored health benefit exclusion.

But Obama’s recognition that we must finance health care reform — a good bulk of the $1.5 trillion over ten year estimate — from money already in the system is significant. The President has already identified about $300 billion in savings in his budget. Now, as Jonathan Cohn points out, he “is putting another $200 to $300 billion on the table” from additional savings in Medicare and Medicaid.

This makes the public plan all the more important. If MedPAC is identifying payment reforms that would lower health care spending, then the public health option could transfer those methods into the private insurance market by itself adopting these efficiencies and (through the miracle of competition) coax private insurers to do the same.

MedPAC’s recommendations will likely yield a good chunk of the change, as will the offsets Obama has already proposed. But if the President truly believes, as he states in the letter, that “without a serious, sustained effort to reduce the growth rate of health care costs, affordable health care coverage will remain out of reach” then he’ll likely have to add some teeth to his public option rhetoric. That means allowing the public option to use Medicare leverage to negotiate with providers.