Page last updated at 06:15 GMT, Monday, 20 July 2009 07:15 UK

Can Obama pass healthcare reform?

By Steve Schifferes
Economics reporter, BBC News

A medic draws up a syringe
US health care is the most expensive in the world - but millions are not covered

President Obama's key domestic policy objective is to reform the US system of healthcare. And the next few weeks will be crucial in determining whether he can deliver the fundamental reform that has eluded his predecessors.

"I am going to keep pressing until we get this done," President Obama told a town hall meeting in Virginia in early July as he went on the offensive.

The rising cost of health care for individuals, which has made it unaffordable for an increasing number of Americans, was a key issue in Mr Obama's election campaign and crucial to his victory.

Now a number of bills are already making their way through the US Congress, and the President would like to sign a comprehensive plan this year, despite intense opposition from Republicans and lobby groups.

We believe that the present health care system is unsustainable and making the country's businesses less competitive

But as the cost of healthcare reform has risen, along with a $1.7 trillion (£1 tn) US budget deficit, Mr Obama has had to abandon some of his early pledges, and consider increasing taxes to pay for reform.

His $1 trillion 10-year plan has drawn the ire of budget hawks, who want tough measures to reduce the deficit.

"There remain questions about whether this is the right time to be engaging in such an expensive agenda item," says Maya McGuineas of the Committee for a Responsible Budget.

"We've already been hit with sticker shock of just how much this [budget deficit] is going to cost."

Who should be covered?

US Hispanic family
Hispanics are less likely to have health care

There are two huge issues facing the US healthcare system: The fact the one in six of the population are not covered by health insurance, and the fact that despite the lack of universal coverage the system is extremely expensive.

The central problem of designing any reform plan is that the two objectives, containing costs and covering the uninsured, are in conflict.

It could cost between $100bn and $200bn a year to provide comprehensive coverage, depending on the plan chosen, and Mr Obama's hope that this could be paid for by efficiency savings and repealing some of the Bush tax cuts looks unlikely to be realised.

So Congress is now considering whether to tax people with higher incomes who currently receive health care from their employer as a tax-free benefit - a move which is highly controversial.

Mandatory insurance

Barack Obama speaks in Raleigh, North Carolina
Mr Obama campaigned for health care reform as a a key priority.

And what mechanism should be put in place to ensure that everyone has healthcare coverage?

During the election, Barack Obama resisted the idea of a mandatory requirement that said everyone had to take out health insurance if it was not provided by their employer - a system that has been successfully implemented in the state of Massachusetts.

The idea is that people who cannot afford such healthcare coverage will receive subsidies from the government to pay for it.

Given the strong resistance to introducing a free-at-the-point-of-use style system in the US, this is now seen as the best way to provide universal coverage - although it involves an element of compulsion, and it is not clear how it would be enforced.

Workplace plans

Wal-Mart store in California
Wal-Mart, the US's largest employer, now backs health care reform

For the majority of working-age Americans, however, their healthcare is likely to be a workplace scheme that they and their employer both contribute to and qualifies for tax-relief.

But many smaller companies do not provide health coverage and are opposed to forcing them to provide healthcare, the so-called employer mandate.

However, in a surprise reversal of its previous position, America's biggest company and largest employer, the retail giant Wal-Mart, has come out in favour of compulsory healthcare provision by companies.

"As a company, we believe that the present health care system is unsustainable and making the country's businesses less competitive," it said.

But their stance is unpopular within their own industry.

"We are surprised and dismayed by Wal-Mart's choice to embrace an employer mandate in exchange for a promise of cost savings," the National Retail Federation said.

Such a mandate "would quite possibly cut off the economic recovery we all need," it said.

But Democratic senator Max Baucus said that without such a mandate, employees "may be enticed into leaving their firm's healthcare plans" to join the government-provided back-up scheme, thus increasing costs.

Controlling costs

senior citizens in Palm springs
Older people are covered by government health care

The US system costs twice as much per person as the healthcare systems in other major developed countries such as France, Germany and the UK.

And the rapidly rising costs of healthcare, which now make up 18% of the entire US economy, threaten to bankrupt or severely constrain the future spending of governments, companies and individuals alike.

Treasury Secretary Timothy Geithner said that the only way to make the system solvent in the future was "to control runaway growth in both public and private healthcare expenditures".

The Congressional Budget Office says the rising cost of federal healthcare could bankrupt the country in the next 50 years if costs are not contained.

The healthcare system is expensive partly because it is a hodge-podge of competing insurance plans, both government and private.

Half of all healthcare spending is met by the government, which insures everyone over 65 through its Medicare system, and also pays the healthcare costs for the permanently sick, disabled or poor.

And each part of the system tries separately to shift costs to the other.

Political perils

But reform of the healthcare system is fraught with pitfalls.

The last attempt at reform, by President Bill Clinton in 1993, ended in tears after Republican and popular opposition derailed his plan, helping the Republicans gain control of Congress in the 1994 elections.

It is not hard to see why so many Presidents, from Harry Truman onwards, have failed to carry out healthcare reform.

On the one hand, the enormous size of the sector means that there are enormous vested interests, such as doctors, hospitals, drug companies and insurance companies, who stand to lose from such reforms, and have influence in Congress.

On the other hand, comprehensive reform - especially if it added benefits and expanded coverage - could be enormously expensive, eventually adding to the tax burden if paid for by the federal government.

That is why controlling costs is vital in any healthcare reform - a fact recognised by President Obama from the beginning.

The President has already gained agreement from the pharmaceutical industry to cut drug costs by $80bn, and persuaded hospitals to cut their spending by some $155bn by reducing Medicare payments.

Towards rationing?

But even these savings will not be enough to contain the rapidly rising costs of healthcare, which are growing at twice the rate of the economy in the long term.

So looming in the future is the possibility of healthcare rationing by the government - something that is anathema to the Republican right.

Of course, the US healthcare system is already rationed by price, and those without coverage or unable to avoid to pay privately, excluded from access to the system except in emergencies.

An early proposal for healthcare reform by former Senator Tom Daschle, who had been slated to become Mr Obama's healthcare chief but had to withdraw, argued for a national body to determine standards.

And there is no doubt that costs vary enormously between states, and hospitals, without any noticeable difference in outcomes.

But explicit rationing is political dynamite in the US. So the most likely outcome is improved electronic information systems to allow comparisons of costs and benefits of various treatments.

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