By John Rother

With the sequester in place, some in Congress have embraced it, believing that these across-the-board cuts can actually help address our long-term fiscal problems. They are badly mistaken.

This Congress has not even begun to grapple with what the Congressional Budget Office (CBO) has called our greatest fiscal challenge: rising healthcare costs. In fact, the debate around the sequester has diverted attention from the more fundamental goals of “bending the curve” of rising per capita healthcare costs and getting more value for our public and private healthcare dollars.

The need for further action to address these longer-term problems remains. Congress has three choices: continued, indiscriminate meat-ax cuts like the sequester; shifting of federal costs onto consumers, health plans or employers; or a smart savings approach that finally addresses the enormous levels of waste and inefficiency in our health system.

The meat-ax approach is the simplest to comprehend and implement. Congressional budgeters can pick any amount of savings they desire and simply lower the federal government’s payments to healthcare providers, drug plans, health plans, and state Medicaid programs accordingly.

The sequester itself is exhibit A for this approach, trimming 2% from every payment Medicare makes to providers and plans. However, the sequester is not the only place you can find meat-ax cuts. The Sustainable Growth Rate (SGR) formula, created in 1998, was an ill-conceived attempt to apply this strategy to physician payment. Current proposals to block grant Medicaid would apply similar principles to that critical safety net program.

Undoubtedly, the meat-ax could make the federal balance sheet look better. But its consequences for the healthcare system on which we all depend are real. Indiscriminate cuts to hospitals could drive up the prices they charge businesses and health plans. Indiscriminate cuts to providers could hasten the retirement of a generation of physicians that we need badly if we are to reduce avoidable hospital admissions.

Another path would trim the deficit by shifting costs now borne by the federal government onto consumers. In its most direct form, this means raising premiums for Medicare Part B physician services and increasing deductibles, copayments, or coinsurance. Versions of premium support that ratchet down the federal government’s contribution to beneficiaries’ coverage over time also achieve budget savings by making beneficiaries pay more. Similarly, raising the age of Medicare eligibility shifts costs on to seniors and employers by requiring 65- and 66-year-olds to find and pay for their own coverage.

Scaling back Medicare coverage in this way could allow the federal government to dodge the costs created by retirement of a generation of baby boomers. For a time, even a decade or more, it could give the appearance of fiscal solvency. However, this strategy does nothing to tame growth in per capita healthcare costs, and, eventually, even these scaled-back programs will prove unsustainable.

A smart savings approach, on the other hand, would attack the actual root causes of cost growth and inefficiency in both the public and private sectors.

This path requires real policy change, not just a hack-and-slash budgetary exercise. It would move the bulk of providers out of our current fee-for-service system and into payment models that support high-quality, low-cost care. It would mean moving toward value-based benefits that help consumers manage their health and seek out the best care for their healthcare dollar. Finally, it would demand injecting transparency and competition into overpriced markets for hospital services and medical equipment.

The core elements of this smart savings approach are not new. Experts on both sides of the aisle have known for years that we must either move to a higher-value health system or face painful cuts to provider reimbursement, health coverage, or both. The 50 specific recommendations detailed in the National Coalition on Health Care’s Plan for Health and Fiscal Policy, released in November 2012, can start us down the road of smart savings.

With the sequester now in effect, there is real urgency to choose the best way forward. At stake are our hopes for short-term economic recovery and the long-term affordability of healthcare for our families, businesses, and public institutions. Should Congress fail to act, or should they make the wrong choice, the rest of us will end up paying the price.