March 25, 2010 9:22 pm

Orszag says Medicare board key to health policy

A body to regulate the expensive Medicare system of healthcare for US seniors could have as big an impact on health policy as the Federal Reserve has had on monetary policy, according to Peter Orszag, the White House budget director.

The Medicare Commission, or Independent Payments Advisory Board, would have the power to override Congress if it rejected cuts to the entitlements programme for seniors, said Mr Orszag, a key architect of the reforms signed into law this week.

“This could well turn out to be as consequential for health policy as Federal Reserve policy was for monetary policy,” he said in an FT View from DC video interview. “The commission will put its proposals forward and if Congress does not act on them, or if it votes them down and the president then vetoes that bill, they will automatically take effect. Huge change.”

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According to bleak US fiscal projections, rising Medicare payments will account for more than half of the increase in the country’s future deficits as the baby-boom generation begins to retire and eats up an ever larger share of the federal budget.

But the politics of healthcare reform, which has led to rancorous division between Republicans and Democrats, also casts a cloud over any possibility of bipartisan co-operation to tackle the debt crisis – particularly on Medicare.

Although Republicans attacked the healthcare bill as an expensive new entitlement, they strongly resisted attempts to reduce costs in Medicare, even thought it is by far the most socialised and expensive element of the US healthcare system.

According to the non-partisan Congressional Budget Office, the $940bn (€707bn, £634bn) 10-year healthcare bill Barack Obama signed into law this week will reduce the deficit by $138bn in the first decade and by more than $1,000bn in the second.

Mr Orszag, who spent last week reassuring fiscally conservative Democrats on the healthcare bill, believes the CBO’s estimates were too low: “If you look at the history of [such] projections they have tilted towards being too conservative,” he said. In addition, he said, the CBO had not fully “scored” the potentially far-reaching powers of “game changers” within the bill, such as the Medicare body, to be set up in 2014.

The body’s powers would resemble the Base Closure and Realignment Commission, which recommends to Congress which military bases to close. Unlike normal bills, Congress can vote only “yes” or “no”. That deprives lawmakers of their normal powers to insert special deals, but with the knowledge their opponents will also lose that scope.

Mr Orszag said Mr Obama still held out hope that the bipartisan fiscal commission he recently announced, which will be co-chaired by Alan Simpson, the former Republican senator, and Erskine Bowles, the former chief of staff to Bill Clinton, would make tough proposals that would be voted on in Congress next year.

He said it was vital the politics remained ahead of the markets. “We do not want to be in a position where financial markets are forcing more dramatic action [on policymakers],” he said. “We need to get ahead of this problem so that we are not facing that kind of crisis.”

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