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If health reform is enacted this year (or next), one thing is certain. The final bill will do little to change the fundamental economic incentives that drive health spending. This is disappointing but not surprising given the political forces at work. Although politicians argue that we need to bend the cost curve down, reform proposals will increase total health spending--confirmed by CMS actuaries, even assuming Medicare fee cuts that are unlikely to be implemented fully. For the most part, health reform will expand the current inefficient health system, hoping that another layer of regulation will produce better value for our money.

Perhaps the single best idea is to reform the current tax break for insurance purchased through employers. The Senate Finance Committee included a tax on so-called Cadillac health plans, which would spur sales of lower cost insurance that promotes greater cost awareness and more efficient health care delivery. Not the ideal policy--capping the tax exclusion would be more direct and fairer to low-wage workers--but not bad.

It now appears that Senate majority leader Harry Reid is considering scrapping it in favor of a higher Medicare payroll tax imposed on workers making more than $250,000 a year. That replaces a provision that promotes health system efficiency with one that discourages work in the teeth of the recession.

Worse yet, this turns the payroll tax into another source of general tax revenue that can be tapped for any new spending, rather than using the funds to shore up the financially-endangered Medicare program. The reform bills are more than willing to cut Medicare payments to support a new health insurance entitlement for younger people. Raiding the payroll tax is simply the next step in a process that will leave us with enormous fiscal problems in Medicare and in the broader budget without policy tools to solve them.

If we truly wish to create a sustainable health system, we cannot rely on easy-to-score budget cuts that keep intact payment methods and delivery methods that have produced unaffordable health care. The key is promoting smarter purchasing and smarter medical practice, and that means changing the way we do business. There is little in the reform bills to suggest that it won’t be business as usual.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.