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Cost of Health Care Likely to be Much Higher than $2.5 Trillion

Posted By David Weinberger On March 4, 2010 @ 1:44 pm In Obamacare | Comments Disabled

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From the start the president’s health care cost estimates were much too modest. Here’s why:

First, the administration’s accountants left off the books nearly a quarter-trillion dollars in what’s called the “Doc Fix” [2]. Originally, the formula was designed to prevent total Medicare physician spending from growing faster than the Medicare population, the economy, and the amount necessary to implement changes in benefit coverage. The problem is, every year since 2002 physician groups have successfully lobbied to delay the cuts so that we now face a 10-year $247 billion measure to block a planned 20 percent cut in Medicare reimbursement fees to doctors mandated by a 1997 federal law [3]. Obamacare advocates point out that it’s unfair to include this measure in the cost analysis, because, they contend, the Doc Fix will happen [4]irrespective of whether or not the current health-care reform passes [4]. But the Doc Fix was included in early versions of Obamacare and was only dropped when the left couldn’t find a way to pay for it. If left unaddressed it is entirely appropriate to include its costs in health reform cost estimates. And when this measure is taken into account, costs hit $1.15 trillion.

Second, some scrupulous tactics were used to calculate the 10-year cost projections. The key provisions in the health care bill don’t go into effect until 2014. Meanwhile Medicare cuts and tax increases would go into effect immediately. So the money raised through taxes and spending cuts in the first four years of the 10-year projection would offset the expenditures in the subsequent six years. Consequently, when the true ten year window (2014-2023) is examined, and the costs of the “Doc Fix” are taken into account, the cost rises to $2.3 trillion.

Most notably, however, is the CLASS Act (Community Living Assistance Services and Supports Act) provision. This is where the real cost waits. Another long-term entitlement program (Even though we have two that are going broke) that the CBO recently calculated will reduce the federal deficit by $72.5 billion [5] in the first decade. Still, this does not mean the cost curve will bend downward or that it won’t add to the deficit.

The CBO’s estimate is based on sleight-of-hand accounting. The trick is that CLASS Act doesn’t pay benefits until 5 years from now, but collects payments immediately. In other words, it builds up a nice sum of money (through $72 billion worth [6] of taxes, bringing the cost of the 10-year projection to $2.5 billion) for ten years, but pays benefits only for the last 5 years, and therefore appears to lower the deficit in the near term.

But regardless, deficit reduction is not what the CBO says [7] about the subsequent decades:

CBO estimates that both the House and Senate versions of the CLASS program would reduce the federal budget deficit in the second decade following enactment of the legislation (2020-2029), but by smaller amounts than in the initial decade. By the third decade, the sum of benefit payments and administrative costs would probably exceed premium income and savings to the Medicaid program. Therefore, the programs would add to budget deficits in the third decade—and in succeeding decades—by amounts on the order of tens of billions of dollars for each 10-year period.

A new entitlement program will assuredly send costs soaring. If you’re not buying the CBO analysis, consider the historical record for two public health plans. When Medicare was first introduced in 1965 it was projected to cost $12 billion by 1990. However, the actual cost in 1990 was $112 billion. Off by nearly factor of 10. [8] Imagine that the current bill turns out to cost 10 times as much as its projection. That’s more than $25 trillion — almost twice the value of everything produced within the United States. Would this proposal even be considered if that were the case?

Additionally, Medicaid projections turned out to be too low, much too low. It started virtually unnoticed as an optional program [9], but quickly took hold and grew at an unprecedented rate [8]. Although small at its inception in 1965 (relative to Medicare), according to stateline.org, the program grew to account for eight percent of state budgets by 1985. Just 20 years later, Medicaid consumed 22 percent of state’s budgets, and that, combined with federal spending, amounted to $330 billion. Today, the program continues to devour state budgets while 57 percent of the tab is picked up by the federal government.

The historical record coupled with the CBO analysis make it crystal clear that this bill will not lower costs, bring down the deficit or reduce health care spending. The truth is just the opposite.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/03/04/cost-of-health-care-likely-to-be-much-higher-than-2-5-trillion/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/doctor_bill0906233.gif

[2] “Doc Fix”: http://www.heritage.org/Research/HealthCare/bg2301.cfm

[3] a 10-year $247 billion measure to block a planned 20 percent cut in Medicare reimbursement fees to doctors mandated by a 1997 federal law: http://www.foxnews.com/politics/2009/10/20/senate-leaders-reconsider-medicare-doctor-fix-critics-say-adds-b-debt/

[4] : http://voices.washingtonpost.com/ezra-klein/2010/03/paul_ryan_and_the_true_cost_of.html?referrer=emaillink

[5] $72.5 billion: http://www.ocregister.com/articles/class-227304-program-act.html

[6] $72 billion worth: http://www.heritage.org/Research/HealthCare/wm2816.cfm

[7] CBO says: http://www.cbo.gov/ftpdocs/107xx/doc10769/CLASS_Additional_Information_Miller_letter.pdf

[8] When Medicare was first introduced in 1965 it was projected to cost $12 billion by 1990. However, the actual cost in 1990 was $112 billion. Off by nearly factor of 10.: http://www.onenewsnow.com/Perspectives/Default.aspx?id=782496

[9] optional program: http://www.stateline.org/live/details/story?contentId=454040

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