Partly from taxes. Unions and some rich people won't like it, but we're coming to the end of the era when cosmetic enhancements are not only covered by insurance but the premiums are fully tax-deductible. Why should the taxpayers subsidize 40 percent of the cost of a designer smile?

But getting rid of the full tax deductibility of gold-plated employer plans won't solve the problem. It goes deeper. The president wants everyone to read an article by Atul Gawande in The New Yorker that explains the absurdity of regional variations in health-care costs. Gawande found that McAllen, Texas, had much higher health-care expenditures than nearby El Paso, even though their demographics were the same and McAllen got no better outcomes.

The supposed remedy for these outrageous variations is a concept called "comparative effectiveness," where doctors would be advised that this treatment for a urinary-tract infection or that surgery for back pain was ineffective and should not be used. The key word is advised. Advising doctors on best practices would save some money, but not enough. Forcing doctors to avoid certain treatments that they believe are essential by not reimbursing for them would lead to doctors taking to the streets like Iranian protesters. And Gawande's model, the fabled Mayo Clinic, unfortunately cannot be replicated nationwide.

Obama's budget director, Peter Orszag, tends to hype how much sexy ideas (in thewonk world) like comparative effectiveness can save. This is ironic because, in his old job as head of the CBO, he issued reports showing that comparative effectiveness was a comparative spit in the ocean when it came to savings. Same with highly touted electronic record keeping, as health-policy experts Theodore Marmor and Jonathan Oberlander have shown.

That takes us back to a public option, which would force insurers to redraw their business models and accept lower profits. The House bill will include it, but the Senate's almost certainly won't. Instead, moderates there are pushing health-care "cooperatives." Nobody has a clue what that means. Would the co-ops be like utilities? Farm cooperatives? Starting fresh with a quasi-public/quasi-private organization might bring some much-needed creativity to health-care financing. But without a federal charter and some seed money to help them enroll millions, co-ops will get swamped by the private-insurance lobby, which has become expert at marginalizing state-run experiments.

When it comes time to hammer out the final plan in the House-Senate conference committee, Obama and Rahm Emanuel will likely make the House accept a reduction in the deductibility of employer-based plans and make the Senate accept some kind of public option or co-op with teeth. Anything less means the president didn't get the sucker.

© 2009