Paul Krugman: Health Care Proposal "Some Of The Best Policy News I've Heard In A Long Time"

On Sunday, the Obama administration announced it was working with trade associations, pharmaceutical groups and other stakeholders in the health care debate on a major effort that could save more than $2 trillion over the next decade. Full details will be revealed at the White House Monday.

New York Times columnist Paul Krugman notes today that one of the groups involved is a descendant of the lobbyists that helped kill health care reform with "Harry and Louise." Krugman says he's wary of the shift -- he thinks industry groups will use good will created by this move to try to kill a public health plan backed by progressives). Still, he calls today's developments "some of the best policy news I've heard in a long time."

The fact that the medical-industrial complex is trying to shape health care reform rather than block it is a tremendously good omen. It looks as if America may finally get what every other advanced country already has: a system that guarantees essential health care to all its citizens.

And serious cost control would change everything, not just for health care, but for America's fiscal future. As [Budget Director Peter] Orszag has emphasized, rising health care costs are the main reason long-run budget projections look so grim. Slow the rate at which those costs rise, and the future will look far brighter. I still won't count my health care chickens until they're hatched. But this is some of the best policy news I've heard in a long time.

As to how costs will be contained, Krugman points to Orszag. The budget director wrote this weekend on the White House website:

How do we do it?

First, we improve tax compliance and eliminate unjustified tax breaks for narrow interest groups. [...]

Second, as in the February overview, the Budget would also limit the tax rate at which families making more than $250,000 can take itemized deductions to a maximum of 28 percent. This is a matter of fairness. If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and make that same donation, you currently get a $350 deduction--more than twice the break as the teacher. Limiting itemized deductions for high-income Americans would help restore balance to the tax code, and any effect on charitable giving is likely to be swamped by other Administration policies. The best way to boost charitable giving is to jumpstart the economy and raise incomes--and the purpose of the Recovery Act enacted in the Administration's first month in office was to do precisely that. The limitation on itemized deductions is now expected to raise about $267 billion over the next 10 years, which we will devote entirely to health care reform. All together, these policies would raise a total of $635 billion to be devoted to health care reform--almost exactly the same total amount as in the February overview.

It is true--more savings than this will be needed to pay for comprehensive health care reform in its entirety. But I believe that the reserve fund, in itself, represents a historic commitment, and I look forward to working with Congress to bring about--and pay for--fundamental health care reform this year.

American Prospect writer Ezra Klein is more skeptical than Krugman; he wrote in response to the news that the real test is when the health care reform bill comes out.

Maybe I'm just churlish. Maybe I'm getting cranky as I age. But I can't shake my skepticism about today's big health care announcement. [...]

The big test is not today. It's a month from now. In June, the Finance Committee will release the first version of its health reform bill. If the bill is what we expect -- something along the lines of Baucus's white paper, or Hillary Clinton's campaign proposal -- and these industry groups not only endorse it but explain how they will save money within its confines, that will be something to celebrate. If they use the credibility they've attained today to unleash a more vicious assault tomorrow -- if they grimly say that they proved their willingness to work with the administration but this legislation and its public plan and its insistence on evidence and its payment reforms sadly proves the administration's unwillingness to work with them -- then that will be a rather less cheery outcome.

The New Republic's Jonathan Cohn wrote that it makes sense to be dubious, "but make no mistake: This is a big deal, if only for the clear political signal it sends."

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