Joe Newhouse is a very thoughtful professor of health care policy at Harvard. He recently published this article in Health Affairs, "Assessing Health Reform’s Impact On Four Key Groups Of Americans." It should be required reading for legislators and other public officials, plus the rest of us interested in the regime for financing health care.
Here is the summary:
Health reform can be assessed from the perspective of four groups that collectively include most Americans. For those who are now in Medicaid or who are uninsured, reform will be a major gain. For those who obtain health insurance in the individual and small-group markets, reform should bring improvements. For those who have health insurance from midsize- and large-group insurers, reform will bring little change. Finally, for Medicare beneficiaries, reform promises to bring positive change. However, financing future health spending overall, and Medicare spending in particular, poses a formidable challenge. Although not a panacea, all-payer rate setting, in which a federal or state agency establishes standard payment rates for each class of payer, may be the only feasible alternative, at least in the short run.
The article is too detailed to go through all of the logic behind Joe's conclusion here, but let me give some snippets to give you the color:
The bad news concerns paying for Medicare going forward. The discussion can best be framed with two quotes. The first is from Peter Fisher, undersecretary of the Treasury in 2002: "Think of the federal government as a gigantic insurance company ... which only does its accounting on a cash basis—only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting is not really an insurance company at all. It is an accident waiting to happen."
...There appears to be little appetite in the current electorate for a major tax increase. ... Clearly, if Medicare payment cuts in the law are avoided when future administrations and Congresses flinch at the prospect of losing the votes of the elderly, there will be a collision between force and object, with reverberations outside of health policy to the entire economy.
...Assume, however, that a substantial portion of the Medicare reductions called for in the health reform law are not made, and that further borrowing is off the table. If commensurate cuts cannot be made elsewhere in the budget, the immovable object will be forced to move. Taxes will need to increase to finance Medicare. Going out well past 2020, however, the implied tax increases are simply not plausible.
...In short, it is hard to imagine that reductions in the rate of Medicare spending growth will not be made at some point. One way or another, the steady-state growth rate will fall; the curve will be bent. But it is equally hard to imagine cutting only Medicare spending while spending by the commercially insured under age sixty-five continues to grow at historic rates, which would lead to a marked divergence between what providers are paid for treating the commercially insured relative to what they are paid for Medicare beneficiaries. This gap could jeopardize Medicare beneficiaries’ access to mainstream medical care.
...If Medicare payment cuts are just as problematic as allowing Medicare payments to continue growing unabated, what is the alternative? There is one, of course: reducing the rate of growth not just of Medicare spending, but of total health care spending. At some point this will be unavoidable.
...Ultimately, there is no panacea. Despite all of the substantive and political problems of price setting, some sort of all-payer regulatory regime may be the only feasible alternative. The other choices would be to allow a much larger discrepancy between commercial and Medicare rates than at present, raising the likelihood of access issues for Medicare beneficiaries, or keep Medicare rates within striking distance of commercial rates, allowing Medicare spending to claim a much larger share of GDP as time passes. To finance that larger share, however, taxes would have to rise—probably by a substantial amount. What to do about Medicare going forward is a boulder that remains at the bottom of the hill.