Counting the True Cost of Obamacare

March 21st, 2010 at 7:56 am | 10 Comments |

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The vote is just a few hours away, and the fate of Obamacare hangs in the balance. In recent days, the White House and its allies have touted the CBO estimates – and, yes, the CBO projects deficit reduction over the next ten years with these reforms.

I’m deeply skeptical of this “fiscally conservative” argument for ObamaCare. My thoughts can be read here.

(With so many legislative changes being contemplated, writing on CBO estimates is a challenge, since the CBO is constantly revising and updating their projections. The numbers mentioned in that essay are already dated. For the latest CBO estimates, see here.)

My colleague and editor David Frum also writes on the CBO estimates in his latest National Post column, and he makes a good point about such estimates being historically inaccurate.

Mr. Frum focuses on CBO scoring and Medicare:

Healthcare projections are notoriously difficult. As the American Enterprise Institute’s Steve Hayward has pointed out, similar estimates were done at the creation of the U.S. Medicare program in 1965: “Government actuaries predicted that the cost of a day’s hospital stay by 1985 would be $155 and that the hospital insurance portion of Medicare would cost $9-billion by 1990. The actual average cost of a hospital day by 1985 was over $600; instead of $9-billion, the hospital-insurance program cost $63 billion in 1990.

Put another way, the true cost of the hospital-insurance program was 700% of what actuaries had predicted. Adjusting for inflation, the real cost turned out to be almost double the forecasted estimate.

I’d add two points about estimating the cost of government healthcare programs.

First, it’s almost impossible to sensibly score future healthcare expenses. A paper from the minority of the Joint Economic Committee illustrates the point: whether you consider Medicare hospital insurance, Medicaid DSH funding, Massachusetts’ recent health reform, or British NHS costs, all have come in well over the early estimates. The staff who drafted the report are, obviously, partisan – but the numbers are sound (and referenced), and the criticism is implicitly nonpartisan, since Republican and Democratic administrations have overseen these cost explosions.

Second, the CBO numbers are even more suspect than previous estimates. Not because this CBO director is biased (far from it). Rather, the CBO estimates are based on fantasy: that Congress will allow deep cuts to Medicare reimbursement rates. The so-called doctors’ fix would see physicians across the country receive less money – significantly less money – to take care of the elderly. (Based on the CBO assumptions, docs would look at a scheduled cut of 21% in 2010, then about 2% until 2019.)

But this Congress has had a hard time reducing physician compensation. In the late fall, for example – with Obamacare being literally debated in the Senate – the House of Representatives passed a bill reversing Medicare cuts slated for 2010, with White House support.

This Congress hasn’t wanted to touch Medicare. Why would that change any time soon? As CBO Director Douglas Elmendorf notes in his latest letter to Speaker Pelosi when contemplating longer-term forecasts, he pins them on: “[A] number of policies… that might be difficult to sustain over a long period of time.”

I’ve made this point before, and I’ll repeat as a vote looms: no Congress in recent years has been particularly effective about reigning in Medicare costs.  Congress reversed planned cuts in 1999. And 2004. And 2005. And 2006. And 2008. In fact, since 1997, when members of both parties agreed to automatic cuts if spending rose faster than population and economic growth, the program has been cut just once, in 2002.

All CBO healthcare projections, in other words, are suspect; this one is particularly misleading.

Congress will vote now. And, despite the promise of deficit reduction, you’ll pay later.

Recent Posts by David Gratzer



10 Comments so far ↓

  • TerryF98

    Some Facts.

    Your party has screamed long and hard about “Death Panels” and Medicare cuts being the work of the devil.

    You brought in Medicare part D unfunded and by false pretenses.

    You spent 1.5 TRILLION dollars killing 145,000 people in two wars totally unfunded.

    Now you rail against a bill that is fully funded and quote figures from Great Britain!!

    Your party recently voted against paygo and a commission to reduce the deficit.

    The USA spends more on healthcare and covers less people than any other civilized country.

    You have no clothes sir.

  • sinz54

    TerryF98:

    Stop with the ad hominem attacks.
    No matter what Mr. Gratzer’s party did in the past, his argument has to be evaluated on its merits.

    The budgeting for ObamaCare is bogus, because it assumes all kinds of future projected cuts to entitlements like Cadillac health care plans for unions and Medicare Advantage for seniors. When the time comes to make those cuts, Congress will scuttle away like the cowards we both know they are.

    I don’t believe that those cuts will happen, regardless of who gets elected to the White House and to Congress. At least not for a very long time. (It took 60 years to reform welfare.)

  • ottovbvs

    2 sinz54 // Mar 21, 2010 at 9:35 am

    TerryF98:

    “Stop with the ad hominem attacks.
    No matter what Mr. Gratzer’s party did in the past, his argument has to be evaluated on its merits.”

    …….And the totally bipartisan CBO finds that in budgetary terms the effects are benign……Gratzer on the other hand is an insurance industry shill who has been trashing the reform efforts for a year……So who you going to believe……you should take your own advice Sinz

  • JonF

    And yet, the much-maligned Medicare Part D has come in at significantly under CBO estimate. So it is possible for health programs to be cheaper than they were projected to be. I am not saying that the current HCR bill will work out that way, just that we should remember that these estimates can err in either direction.

  • TerryF98

    Sinz54,

    My,my you are a sensitive little soul! You have to start somewhere. The point I was making is that the Republicans did no budgeting at all for the wars, zero. That the medicare part D was passed on bogus figures. They even fired the director of the CBO because he disagreed with those bogus figures.

    This corporateist industry shill has a record of hypocrisy. Sorry if me pointing that out offends you in any way, you seem a delicate flower.

  • sinz54

    TerryF98: The point I was making is that the Republicans did no budgeting at all for the wars, zero. That the medicare part D was passed on bogus figures. They even fired the director of the CBO because he disagreed with those bogus figures.
    If you insist on going back in history:

    The Big Dig in MA (a project of Dem Gov Dukakis) overran its budget by 400%.

    Food stamps (a project of Dem President LBJ) overran their budget by some astronomical amount. (The original budget for food stamps in 1965 was roughly $100 million per year, for an estimated 4 million beneficiaries. But today, some 35 million people–one-eighth of America’s population–is on food stamps. )

    The cost of Medicare has soared.
    The cost of Social Security has soared.

    We can play this game as much as you want.

    It doesn’t matter which party proposed an entitlement program. The entitlement program, once enacted, tends to soar in cost–because all kinds of people who never thought about it suddenly see a pot of “free” money and rush to get their hands in the till.

  • ottovbvs

    Sinz:
    “The entitlement program, once enacted, tends to soar in cost–because all kinds of people who never thought about it suddenly see a pot of “free” money and rush to get their hands in the till.”

    ……And have you got your hands in the till because you are a self admitted beneficiary (as you should be) of the MA health program?…..yes, budgets tend to over run whether it’s wars and military projects at the Pentagon, municipal projects or healthcare projects……surely the point is whether the project on the whole advances the public good or does not…….is roughly $900 billion spent so far over a eight year period on a war in Iraq a more wise investment of public funds than roughly the same amount spent over ten years in extending healthcare coverage to those without it…….I’d say it was a no brainer but I’m sure we can count on you to prefer the war

  • SFTor1

    Get out of the way if you can’t lend a hand, for the times they are a-changing.