Obama's Path to Greatness: Health Care as Stimulus

President Obama will have a historic opportunity to establish himself as a truly great president in his first days in office. He can take advantage of the current economic crisis to announce plans to jump start national health care insurance. Extending health care insurance can be an effective stimulus that will provide an immediate boost to the economy.

More importantly, it will provide the same access to health care that people in other wealthy countries have long taken for granted. For this accomplishment, President Obama will rank alongside Presidents Roosevelt and Lincoln as one of the nation's truly great presidents.

The backdrop is straightforward. Economists from across the political spectrum are now calling for a large stimulus package to limit the economy's decline and the rise in unemployment. The consensus is in the range of 2.0-2.5 percent of GDP, or $300 billion to $400 billion a year.

This level of agreement among economists is encouraging, but the reality is that it is difficult to effectively spend $300 billion to $400 billion a year on short notice. There are some no-brainers that belong in any stimulus package: aid to state and local governments, extended unemployment benefits, and extra money for food stamps and home heating oil assistance. This is money that will be quickly spent, boosting the economy, while helping those hit hardest by the downturn.

A stimulus should also include increases in infrastructure spending, which will come about by moving plans forward for projects already on the books. There should also be a substantial green component, involving retrofitting homes, businesses and other buildings, which will reduce our energy use.

However, after we get through this list, the sum total for the stimulus package is probably still in the neighborhood of $150 billion a year, at best half of the targeted sum. This is the gap that will be filled by extending health care coverage.

As a basic outline, the government can give a substantial tax credit (e.g. $3,000) to employers who cover workers for the first time in 2009 and 2010. It can also offer a tax credit covering most, or all, of any additional payments by employers who increase their coverage.

This means that an employer who picked up the workers' share of insurance payments, or got a better plan, would have much of the cost reimbursed by the tax credit. Credits can also be given to individuals who are either self-employed, unemployed, or not otherwise covered through their employer.

If 20 million workers get coverage through this tax credit, that would cost $60 billion. If another 60 million get an average of $1,000 in additional health care benefits, this would cost another $60 billion. If we also throw in funding to reduce the health care burden for Medicare beneficiaries, for example by $1,000 each, this will cost roughly $40 billion. The total cost would be $160 billion a year, a reasonable target for the stimulus package.

At the same time that this health stimulus is enacted, we should open up the Medicare system, allowing all employers and individuals the option to buy into a Medicare-type plan. This is important, because a well-working public sector plan will be important to controlling costs over the long term.

After 2010, the tax credits would be cut back, with the goal being a system of subsidies that pay the full cost for low-income people, but phase out at higher income levels. It will also be important to use the Medicare-type plan and other tools to squeeze waste out of the system, since controlling health care costs is essential to sustaining a healthy economy over the long term.

Extending health care coverage in this way is effectively eating dessert before dinner, but this is exactly what we want to do to counter the recession. It is important that we spend money now to boost the economy. We will be getting double value if this stimulus can be spent usefully toward meeting a longstanding goal, such as providing national health care insurance, rather than just buying things at the mall.

Fixing the health care system so that costs are effectively contained will be a long and difficult political battle. Powerful interest groups, like the insurance and pharmaceutical industries, will use all their power to obstruct this effort. The health care system's waste is their profit.

However, we should be reassured by the fact that every other country has managed to more effectively contain costs. Average per-person health care costs in other wealthy countries are less than half as high as in the United States, and they all enjoy better health care outcomes.

Over the long run the task of containing health care costs is clearly doable. The question for President Obama now is whether he is prepared to take the big leap toward being a truly great president. This opportunity may not come again.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of "The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer" (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.

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