Obamacare’s Costs are still Dire

June 18th, 2010 at 11:10 am | 7 Comments |

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Busted. Jonathon Chait has harsh words for me over at The New Republic, case criticizing a recent blog post on Medicare cuts and deficit reduction. Chait points out that the Medicare “savings” in the legislation are independent of the so-called doc fix, as I claimed in my blog. He’s right (even if he misspells my name). I should know better, having written on the legislation’s financing countless times. I apologize.

As I mentioned in my original post, the revised formula on Medicare reimbursements arises out of the Balanced Budget Act of 1997. The formula is quite complicated but can be summarized as follows: if Medicare costs grow faster than economic growth, physician compensation gets trimmed.

Here’s a rare point of agreement among the left and the right: that formula is problematic and simplistic. Republican and Democratic administrations have called for a long-term revision to Medicare fee payment – but, thirteen years later, post-Clinton, post-Bush, and now into the Obama Administration, the formula everyone loves to hate still stands.

My point, though, isn’t to offer a critique as to whether scheduled program cuts are “successful” or “too successful.” Rather, as I stated in my original post, there are significant political impracticalities to cutting physician reimbursement. Time and again, Republican and Democratic leaderships in Congress have haphazardly voted to undo scheduled cuts. Maybe it’s the pressure of the doctors’ lobby. Maybe it’s the seniors’ lobby. Maybe it’s both.

And this Democratic Congress has been no better. In fact, just months after passing health-reform legislation, Democrats are vigorously pushing to delay the cut to 2011 (they had previously voted to delay it from April to June 2010).

Here’s the bigger problem. Part of the justification for ObamaCare has been the argument that we need health reform to tame the deficit. And, when signing the bill into law, the President touted the incredible importance of the legislation in helping to tame the deficit. Democrats suggested that Congressional Budget Office scoring shows that the health legislation is a deficit reducer over ten years (roughly $130 billion).

But that was back in March.

Since, the CBO released its quantitative analysis in May showing that discretionary spending not accounted for in the previous scores would cost $115 billion. The CBO director himself expressed significant doubts about potential deficit reduction. Speaking to the Institute of Medicine, he began: “Rising health costs will put tremendous pressure on the federal budget during the next few decades and beyond. In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.”  Yet, for the record, the White House wasn’t exactly galvanized into action by CBO Director Elmendorf’s words.

And, now into June, it’s worse. The President and his Congressional allies are seeking a big new health expenditure for Medicare. In other words, the fiscal problem that ObamaCare was meant to resolve continues to exist; in fact, White House reforms will push net federal government health expenditures further into the red.

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7 Comments so far ↓

  • easton

    “Part of the justification for ObamaCare has been the argument that we need health reform to tame the deficit.” Please, this was a very small part, the reason we needed health care reform is because the US pays 16% of its GNP on healthcare, far above the OECD average, with no measurable better outcomes. The main justification for ObamaCare was to bring the share of percentage of healthcare spending for the whole economy down, and to mitigate many of the inequities that existed in America. Now if Mr. Frum wants to go back to recission (you had acne when you were 15 but didn’t list it, so now no coverage for cancer) and denial of service (you are sick, we won’t insure you so don’t think of switching your dead end job ever) and having a population of uninsured greater than that of the population of England, he is welcome to it.

    To be honest, I don’t think Obama’s plan goes far enough, I would love if the US were to adopt the health care system of a country like Israel or Taiwan (these two socialist, anti-freedom locales), and I am sure I could wait for all eternity for Mr. Frum address this aspect of Israel. Could it be that Mr. Frum is far too afraid to address this? That he would be horrified that the system works in Israel and is far more government interventionistic than the US? Or maybe he simply doesn’t care about Israel as it really exists, he only notices it when it is war related? No matter, it seems some Republicans are incapable of looking at the larger picture, whether about countries they supposedly wish to defend, or in the total picture of our health care system.

  • sinz54

    easton: The main justification for ObamaCare was to bring the share of percentage of healthcare spending for the whole economy down
    Which it will NOT do.

    What’s happening in MA now with RomneyCare proves it.

    Even your fellow progressives admit it. They have to. For a whole year they said that the main way to lower healthcare spending was with a public option to compete with private insurers–but that wasn’t in the final bill that Obama signed into law. Our very own “balconesfault” said so here on this NG.

    So without the public option, what in the bill has a prayer of lowering costs?

    “balconesfault” has since been pretty quiet about that.

  • tommybones


    I love this meme. It ignores the fact that costs would be WAY down if the progressive health plan was actually implemented, instead of the re-hashed GOP plan Obama signed. It takes remarkable Chutzpah to criticize higher costs which only exist due to compromises with so-called “conservatives.”

    A robust public option would have brought costs down. Who killed it? The same people complaining about the costs of the plan they helped weaken. Brilliant! Heck, we all know a single-payer would bring down costs by an enormous amount, bit that’s not even allowed into the debate. Why? CONSERVATIVES, like the hypocritical David Gratzer, of course!

    Reminds me of how “conservatives” like Frum and co. had no problem with record breaking deficits while in power. Now? My God, there’s NOTHING more important than deficits! Seriously, are so-called fiscal conservatives deranged? Do they not see their own blatant hypocrisy? Or is there some sort of mental firewall which blocks these obvious inconsistencies from reaching their consciences?

  • easton

    So without the public option, what in the bill has a prayer of lowering costs?

    Preventative care as formerly uninsured can get timely treatment, and also we have the benefit of scale, as more premium payers (whether subsidized or not) can help lower insurers overhead.

    And will you stop with the crap “your fellow progressives admit it” When have I ever said I was a Progressive? I am a pro-life, pro-school voucher, pro-Iraq war, pro-gulf drilling, etc. conservative Democrat. I am also pragmatic, I have studied the health care system of Taiwan and know it has better outcomes at a fraction of our costs. If what works means being progressive, then I am progressive.

  • sinz54

    easton: Preventative care as formerly uninsured can get timely treatment
    That will RAISE costs.

    Careful studies have now shown what to most of us is obvious: The insured use medical services more than the uninsured. That has been the experience in my home state of MA with RomneyCare. RomneyCare even had a “public option.” But that didn’t stop health care costs from rising sharply. As soon as the uninsured were brought into the system, they started demanding the same generous care that the affluent were accustomed to. And health care costs rose sharply.

    The notion that the uninsured are “forced” into using expensive Emergency Room care has been refuted by actual study. In fact, the insured make more use of all services, including Emergency Room Care.

    So insuring all those uninsured people isn’t going to lower the demand for expensive services. It’s going to raise them. And without expanding services, the law of supply and demand is going to drive up the cost of care even higher.

    Here in MA where I live, the response from our liberal Governor, Deval Patrick, has been just as expected: Price controls. He is simply disallowing any more rate increases from insurers. The insurers have threatened to leave MA altogether (as State Farm did when price controls were put on auto insurance years ago). The response from liberals? They literally said they don’t care, it’s better if we have fewer private insurers anyway.

    Does preventative medicine help lower costs in the long term? Again, the answer is no. It turns out that while preventative medicine may help some individual stave off a deadly disease, that cost is outweighed by the cost of applying preventative screening to everybody.

    Prostate cancer is a good example. Only a small percentage of men who get prostate cancer ever die from it. Yet to stave that off, we now have PSA tests and expensive prostate biopsies for tens of millions of American men. While it may be morally abhorrent, from a pure economic standpoint it’s cheaper not to do these tests and let a few men get prostate cancer–and then treat those few men.

  • easton

    sinz, please, prostrate cancer is the only example, not a good one. And I have read studies that a fully insured society might raise costs anywhere between 1 and 3%, but it ignores some fundamentals, one, a healthy society is a productive society, two, having a fully insured society allows for movement of labor to most productive aspects, instead of having people remain at jobs that are not suited for them simply for insurance, and three, it is the right thing to do. Good lord, would you condemn someone to die a useless death to save 1% on additional health care? Really? And of course preventative care saves costs, in that it can prevent much greater charges down the road, and preventative care saves lives, which is a figure you also choose to ignore. How much could the man who had chest pains that did not go to the doctor because he didn’t have health insurance and who dies of a heart attack, how much could he have provided society by way of taxes and support of his family.

    So a healthy society, greater labor mobility, and lower mortality, all could create a wealth effect greater than the 1 to 3% additional costs for health care. Plus, hey, it is the right thing to do, and the moral thing (if you believe in God that is)

    Tell me honestly, do you favor denying preventative care to people to save money? And if so, who?
    Now, as to prostrate cancer, Doctors know the score and they and their patients can make the determination whether to treat or not. Do you seek to deny people that choice?

  • Rabiner


    Totally agree about an insured society would see an increase in wellness and productivity associated with being healthy. However labor mobility will only occur when we break the link between employers and health care benefits.