>> rose: welcome to the broadcast. we begin this evening with peter orszag, he is director of the office of management and budget, and we talk about the budget, about the deficit, and we look ahead to the smit in which president obama will talk about a health care in a live televised encounter. >> as you go out over the long term, there is nothing else we can do. i don't care what revenue proposals you have, what social security proposals you have, what proposals you have to reduce discretionary spending. none of that will matter over the next five or six decades unless we succeed in reducing the rate at which health care costs grow. that is the single most important thing we can do for our long term fiscal future, not only thing, but the single most important thing. >> rose: and we continue with author and journalist richard reeves. his new book is called "daring young men," it is about the berlin airlift. you'll learn a lot about your country and about the people who came forward at a historic moment. >> my students had never heard of this great american adventure. i mean, it brought out as lincoln said, the better angels of our nature and i'm not sure any other people in the world could have or would have done what those young... the daring young men, those young americans did when they got phone calls in the middle of the night saying they had to report within 48 hours to save the people who'd been trying to kill them. >> rose: peter orszag and richard reeves coming up. ♪ if you've had a coke in the last 20 years, ( screams ) you've had a hand in giving college scholarships... and support to thousands of our nation's... most promising students. ♪ ( coca-cola 5-note mnemonic ) captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: peter orszag is here, he is director of the office of management and budget. it is the office that drafted federal government's budget for the president. he has served a prominent role in the ocean. he helped design the dlb 787 billion stimulus plan as well as the health care overhaul bill now before the congress. as the economy has stabilized, he's bun addressing the fiscal deficits that have heightened worries about the country's fiscal stability. i am pleased to have him back at this stable. welcome. >> >> good to be here. >> rose: what do we expect to come out of this experience that's happening on thursday with the president and health care? >> well, what i hope comes out of it is agreement on a health care bill that notnly expands coverage but that helps to reduce the deficit, contain costs, and improve quality over time. that's what we need do. >> rose: so essentially you hope what happens is he convinces republicans and democrats to get on board the new bill that he is recommending, which is essentially the senate... >> with some improvements, yes. >> rose: improvements? what are the improvements? >> well, for example, one of the concerns had been the degree of costs imposed at the very bottom of the income distribution, so called actuarial values that were contained the in the plans in the senate. the president's proposal addresss that to some degree. so there are a variety of changes that have been made that we believe are improvements upon the original senate bill. >> rose: and what about the cadillac plans? >> they're what the presidens proposal reflects is a small increase in the threshold above which the excise tax on high cost insurance plans will apply. and also a later starting date, and i know that's received a lot of commentary and attention from any perspective the key thing with regard to that excise tax is what happens out in 2020, 2030, 2040 where it can help to contain private sector costs and improve efficiencyin the private part of the health care system. >> rose: and the cost of this of this over ten years is what? >> it has not been scored by the congressional budget office but it's going to be in the range of $950 billion or so. in terms of growth costs, but it will reduce the deficit by somewhere close to the senate bill. the senate bill reduced the deficit by a little north of $100 billion over the first decade. anticipate roughly the same from the president's proposal. >> rose: you guys-- and specifically you-- always considered health care as a tool in deficit reduction. >> yes andet me be very clear about this. as you go out over the long term there's nothing else you can do. i don't care what revenue proposals you have, what social security proposals you have, what proposals you have to reduce discretionary spinding. none of that will matter over the next five or six decades unless we succeed at reducing the rate in which health care costs grow. that's the single most important thing we can do for the long-term fiscal future. >> rose: it's what percentage of the g.d.p.? >> currently overall health scare about 16% of g.d.p. it is projected to rapidly increase. and... >> rose: to what? >> well, in ten years it will increase by a few percentage points as a share of g.d.p.. the issue is it continues thereafter. and the thing that's important about the bills under consideration is... the single most important thing we can do-- and this is something bill frist wrote about in the "new york times" a couple days ago-- is remove the incentive systems for providers, for hospitals and doctors and what have you, away from fee for service and towards fee for value, towards paying for quality. the problem that we have is that we currentlyo not know exactly how to design that system. even if i appointed you dictator today and we didn't have a political system, in your opinion charge of the health care system, you would not have the nooj today in a prudent way to snap your fingers and take 15% of the economy and transform it to a fee for value system so what we need to do is aggressively test out different approaches, medical homes, paying for performance in the medical system and then have a way of moving the scale rapidly as we learn which approaches are more promise promising. and that's what's contained in these bills. you have the infrastructure to move towards a higher quality lower cost system over time even though that will require continual effort. >> rose: w do so many doctors do that? >> well, one reason is-- and this is nothing derogatory-- they are financially penalized if they don't. the most glarg example involves, for example, hospitals that have succeeded in reducing readmission. so you're discharged from a hospital and something happens perhaps because the hospital isn't monitoring you correctly or your doctor is not making sure you're taking medication and you're readmitted to the hospital. a surprisingly large share-- roughly 20%-- are readmitted. hospitals that have succeeded in reducing readmission rates have concluded they can't financially afford to continue the practices because they're losing too much money from the reduced readmission rate. that makes no sense. >> rose: one of the things that republicans always say is that why don't they want to make a deal about tort law? >> well, i think the president has expressed-- and he did, in fact, when he gave an a.m.a. speech last year-- some openness to exploring different ideas. >> rose: he says he's open to every idea! that's basically what he says so there's no big thing to say i'm open the the tort law. the question is how serious is he and where are you prepared to move? >> but i guess i'd push back and say if that's the deciding issue let's see a comprehensive plan or a statement that says with this additional piece we now sign on. one thing i would note on medical malpractice is the same people that criticize the existing bills for not reducing costs efficiently, not reducing the deficits efficiently use the congressional budget office as the basis for reaching those judgments. here's the point. the congressional budget office has said most of the medical malpractice reforms throughout despite what doctors and hospitals lieve don't do very much to reduce costs and the deficit. >> rose: fair enough. >> that having been said, the whole purpose of thursday, the event? which you're going to have a gathering of both republican and democratic leaders is to have that discussion. so if there's a specific idea... people say medical malpractice reform, does that mean caps? does that mean a medical court? does that mean safe harbors for evidence-based medicine? what exactly is intended? >> rose: every aspect of the conversation should have been discussed before. health care has been the president's primary domestic goal since he... since the inauguration. >> and the president has put forward a plan, specific plan, that expands coverage, reduces the deficit, will put in place an talk from which you are that will help contain costs over time. and i guess what i would say is weeed... there may be things that, look, will be difcult to do but that if that's what necessary let folks step forward and say with this specific change i will sign on. because it seems to me unfair or not correct to say the president should go out there and start embracing different ideas that he may or may not support in exchange f what? exn exchange for not even getting... >> rose: what would have been wrong for the president to have been much more and you and everybody involved in this effort to have come forward and say "this is what the country needs, this is what we want to do and this is our plan." because the congress conventional wisdom-- and i underline conventional wisdom-- is that the congress put together the plan. >> well, i'm not going to go back through history and start second guessing. i mean, remember, we are further in the process of getting health reform done with bills actually passed both the house and senate comprehensive health reform, than ever before. >> rose: even now after massachusetts. >> well, even now, after massachusetts it's still the case that you have significant pieces of legislation passed both the house and senate. we'll see what happens after the thursday summit. i'm more focused on the content of why this is important to do and what should be done from a substantive perspective. >> rose: i mean, hasn't that argument always been throughout? >> yeah, but let's not forget that if we lose this opportunity if we don't get health reform done now, i don't know that anyone's going to be willing to try again for a very long time. and so the question is not whether these bills are perfect, or the proposal is perfect, the question is whether it's better than doing nothing at all for a very significant period of time. >> rose: so what you hope... the administration hopes comes out on health care is what? >> i bill that reduce the deficit over time, that expands coverage so that fewer americans face the risks of both health and financial risks associated with insurance and that puts there n place the key truck dhaur will help move to a higher quality system over time. the. >> rose: and the goal always has been coverage or cost containment? >> well, here's the thing-- and i'm just going to be frank on this, too. >> rose:please. >> because some of my fellow deficit hawks say "well, why don't you just do the medicare commission? that holds promise, just do the medicare commission and the medicare savings, the reductions in provider payments, et cetera." >> rose: right. >> and what i would say... and leaving apart the moral imperative of expanding coverage, from a political economy perspective, you wouldn't get near... i challenge anyone to come up with a scenario under which a medicare commission would be enacted into law in the absence of comprehensive health reform. so, in other words, the pieces, even though they are aimed at different problems ff together formed a package that again passed both the house and senate in a way that if you just tried to split off one component you would be much less successful at doing. i think it is highly unlikely that we would have gotten anywhere nearly as much in medicare savings where they not linked to other things that were desirable like coverage expansion. and there's certainly no way that a medicare commission would have been passed by on the floor of the united states senate but if... accept if it was part of a comprehensive package. >> rose: what's harder to exrain? is it more difficult to explain health care or is it more difficult to explain how do you at one time stimulate an economy to create jobs and at the same time how do you expand an economy that will go forward in terms of reducing the deficit and the long-term dead obligations of the country. >> i don't know that i want to rank them in relative terms, but they are both challenging to explain. but nonetheless, correct or substantiveedly content is correct. which is that we need to in the short run on the deficit, in the short run additional measures that were enacted are helpful even though expand the deficit in helping to stabilize the economy. but we need to bring the deficit down over time and that seems to conflict or seems internally inconsistent but it's not. and similarly with regard to health care, we have multiple problems that need to be addressed. lack of coverage, lack of attention to quality, and rising costs. and they all need to be addressed and it does get it... it often creates a message problem when they're combined but that's just the way it is. >> rose: why is it that american health care is a larger percentage of the g.d.p. than any other industrial economy? >> well, there have been a few studies of this. i think leading one is from the mckin zi global institute, but there have been others. by the way, those cross country comparisons consistent within the united states studies suggesting that a very large share-- perhaps as much as 30% of the health care that we pay for in the united states-- doesn't actually improve health outcomes. but the mckinsey study suggests the higher costs re are spread throughout the system. it's partially that we are more intense users of technology, partially that we pay more to doctors but that it's basically spread throughout the entire system. >> rose: and is there judgment about the quality of american health care versus the quality of health care in other societies? >> again, at a sort of simple level, most of the studies suggesting that the quality, if anything, is lower here. what i would say though that at our very best institutions, if you face a complicated medical condition the reason that you see foreigners often traveling to the united states to receive care is that our top medical facilities are the best in the world. the problem is that our top medical facilities often are practicing medicine in much different ways at much different costs so comparisons of even our leading medical centers suggest costs are sometimes twice as high at one than the other and they're both world class. >> rose: can you learn anything from lookingt a cleveland clinic or a mayo? >> absolutely. we have examples... this is the stunning part. we have examples in the united states of world-class medicine being delivered at much lower costs than at other institutions with the united states. and if f we can move towards the practice norms that exist at cleveland, at mayo and so on and so forth, we would not only have higher quality, we'd have a lower cost, too. >> rose: but do... but are those people who run those systems and understand how good they are but also what the problem of the system are, are they completely on board about the health care reform proposals passed by the house and pass by the senate and now argued by the president? >> i think they generally believe that the legislation under consideration is much better than failing to act. >> rose: may not be perfect but better than... >> sure. there's always more than can be done. when i was back at brookings i would write about how much more could be done. it's different when you have to face the constraints of what's actually possible. >> rose: that's interesting. you have now been-- more than a year-- director of the office of management and budget. you have seen and studied the numbers and tried to make them work. so being in the pilot seat has made you learn what and understand what thaw that you didn't understand before? >> that it's a lotasier to write a paper than to get a proposal enacted. >> rose: does that have to do with politics or something else? >> it has to do with political economy. in other words, it's easy to write an academic paper... it's not easy, but it's easier to write an academic paper laying out... >> rose: how things should work. >> how things should work. it's much harder when you have a real-world constraint of not only the congress but imperfect knowledge and the details that come with it. it's a lot easier to write a conceptual piece than to actually write a piece of legislation that gets it done. >> rose: as you know, there's a whole big debate going on of which the subject is does government work. are we in gridlock? has washington in a deep freeze? >> well, i think there are areas where we can get a lot done, but there are underlying forces that need to be overcome. and i would point to both the fractionalization in the political system, the gerrymandering, the effects of gerrymandering that leads to polarization among elected members of congress, for example. and then, frankly, changes in technology in the media where you have the blogosphere and new forms of communication that is leading to polarization in how people receive their news and a payoff to being extreme rather than doing your home work. >> rose: so what do we need change? >> well, i don't have the answer to that. but i do know that there are... >> rose: you're an economist rather than a political scientist. >> yes, exactly. but i do know that we have been able to overcom those challenges in the particular areas. i will point to education, for example, where i think we can make significant progress on a bipartisan basis to improve the educational system in the united states. it's one of the things that we invest more in the administration's budget that we just put forward. >> rose: i'm... lots of people who are critical of the administration on a number of issues on education are saying there's a case where they laid some new ground work and have surprised me with the achechlts they have made. >> and i think there's significant progress being made in elementary and secondary education. i'd also point to higr education. one of the things that i think is not fully recognized is we've had a wind at our backs over the past couple decades because average educational attainment in the united states has been rising. that's now flattened out so we no longer have that. we either need go back again and try to get more kids to go to college and complete college or focus just on improving quality. there's a lot we can do to encourage more kids to not only enroll in but complete college, one which is to focus on the pell grant, which is the main form of assistance to low and moderate-income students. but i'd also... even simple things. there was a study recently that the application form for financial assistance to go to college, federal assistance, is more complicated than a tax return, even though most of the items come from a tax return. simply prepopulating the form with the information from the tax return and then filling in the other five or six questions raised college applications and college enrollment by almost 30%. >> rose: already, this is paul krugman on our program on february 18, last week. here it is. >> you have to bring health care costs under control. and if you do that, then you're still left with a fairly sizable gap, but not a huge one at the kind of thing that almost surely the bulk of it has to involve raising more revenue