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Obama kicks budget can down the road

By Laurence J. Kotlikoff, Special to CNN
  • Laurence Kotlikoff: Obama didn't provide solutions to debt problem
  • He says an optimal health plan would blend Obama and Ryan ideas, give priority to the poor and sick
  • He says U.S. can put itself on responsible path now before a debt crisis
  • A plan to guarantee care but limit health costs is vital, he says

Editor's note: Laurence J. Kotlikoff, an economist, is a William Fairfield Warren Professor at Boston University, a columnist for Bloomberg and Forbes and the author of 14 books including, "Jimmy Stewart Is Dead" (John Wiley and Sons), "The Healthcare Fix" (MIT Press) and "The Coming Generational Storm" (co-authored with Scott Burns, MIT Press).

Boston (CNN) -- In his speech on our nation's long-term budget crisis Wednesday, President Barack Obama identified the problem, but he failed to provide concrete solutions.

Indeed, when it came to describing how he would fix federal health care spending, Obama stayed pretty close to his budget document in which he said that Medicare and Medicaid costs would come down because they'd come down and, if they didn't, a panel of experts would tell Congress to lower them.

Give us a break. This is simply a continuation of kick-the-can down the road, which leaves ever larger government bills for our kids to pay.

To be clear, the president is absolutely right that the Bush administration made the fiscal situation much much worse. Indeed, President George W. Bush's administration is arguably the most fiscally profligate in our nation's history. And Obama is also right that high-income households can and must make a much larger tax contribution to help get our nation's finances in order.

Eloquence is no substitute for substance. We need real leadership now, not after the next election.
--Laurence Kotlikoff
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But Obama's speech made no effort to find common ground with House Budget Chairman Paul Ryan's plan to address Medicare and Medicare. Ryan was brave enough to say exactly what he thinks needs to be done with these programs.

If you read his Medicare plan carefully, you'll see that it's highly progressive because the size of each Medicare participant's voucher is based on his/her pre-existing health conditions, and poor participants have worse health status, on average, than rich participants.

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Ryan's plan also puts the government on a fixed health care spending budget when it comes to these two programs, each of which is fully capable, on its own, of bankrupting the country.

I voted for and even campaigned for the president, and my jaw drops every time I hear him speak. But eloquence is no substitute for substance. We need real leadership now, not after the next election.

Since providing basic health care is our biggest cost driver, this is the first order of business. In this regard, what we don't need is one basic health system for the elderly, one for the poor, one for the uninsured and one for the employed.

What we do need is the simple solution described at I launched this website last week with the support of five Nobel Laureates in economics. It's a health care fix that both parties can live with and, frankly, the country cannot live without.

Had the President proposed something along these lines, which is fundamentally very similar to his own health exchanges and to Paul Ryan's plan, I'd be singing his praises and backing his reelection.

The Purple Health Plan replaces our four existing healthcare structures -- Medicare, Medicaid, the Health Exchanges, and Employer-Based Healthcare -- with one efficient, fair, and cost-controlled system. Specifically, the Purple Health Plan provides all Americans with vouchers each year to purchase a basic healthcare policy. Those with bad genes or bad luck receive larger vouchers. The vouchers are paid for by our taxes.

We pay for a basic health plan of our choosing solely with the voucher. Insurance providers of the basic plan can't turn us down. But they will also have no incentive to cherry pick because those with higher expected insurance costs will have higher vouchers. Each year a panel of doctors determines what coverages are included in the basic plan. They do so under a strict budget requiring the cost of all the vouchers not exceed 10 percent of GDP. Ten percent of GDP is close to what Germany spends in total on its healthcare system. It's plenty to provide an excellent basic healthcare system for all Americans. It's also the amount we are now spending at the federal and state levels, including implicitly via tax subsidies to employer-based health insurance.

So paying for the Purple Health Plan doesn't require new taxes. It requires reallocating resources we are now spending inefficiently to this new system. The new plan retains full private provision of healthcare. Insurance companies will complete to offer the homogeneous basic plan and will be motivated to neither under- nor over-provide care and to also offer their participants financial incentives to lower their weight, stop smoking, take their meds, and otherwise improve their health.

The Purple Health Plan is not a blue plan or a red plan. It's a plan all Americans can understand and embrace. And it's receiving endorsements by the minute. With enough signatories to the Purple Health Plan, the two parties will see the light!

So the game is not over. We don't need to spend the next two years watching the two parties point fingers and accomplish nothing. Nor do we have to wait until China and other creditors tell us the gig is up by refusing to buy our government's bonds as some leading bond traders already have decided to do.

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If you like the plan, endorse it and forward the URL to everyone you know. It's time for we the people to be heard -- to show both parties a safe middle road that everyone can embrace and that won't drive our nation broke.

President John F. Kennedy said, "Our problems are man-made. Therefore they may be solved by man. No problem of human destiny is beyond human beings." Let's do him proud.

The opinions expressed in this commentary are solely those of Laurence Kotlikoff.

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