The Cost of Health Care Reform

Reader John Thacker reminds me that I should post Keith Hennessy's excellent analysis of the cost of the health care programs:

CBO estimates the "effects on the deficit of insurance coverage provisions" in the House bill, H.R. 3200, to be $1,042 billion over a ten year period.  (See page 2 of the estimate.)  The $800B - $900B figure cited by the President may be his expectation of the still-private Baucus bill.

But the program is in effect for only about five of these ten years.  In the House bill, the new coverage provision begins in year 4 (2013) and phase up to full effect only in year 6 (2015).  To calculate the per-year cost, therefore, you should divide by roughly six, rather than by 10.

In addition, the new spending grows really fast, so the spending in year 10 (2019) is much bigger than in year six.  CBO estimates the new coverage provisions would cost $202 B in 2019, rather than the President's $80 B (last Saturday) or $100 B (last Thursday) annual cost figures.

Even if you knock 20% off that estimate (assuming the still-private Baucus bill is 20% less expensive than the House bill), you're looking at a $160 B annual cost.  In another document CBO estimated this 2019 cost would grow faster than 8% per year in the long run.

There are revenue provisions, of course, but it's not clear which of them--other than cutting Medicare Advantage, which gets you something over 10% of the final year cost--Obama's plan may include.  It's also not clear whether he intends to subsidize people up to 300% or 400% of the poverty line.  On the other hand, he promised to insure the uninsurable through a high-risk pool immediately, which will up the cost substantially.

But to my mind perhaps the most worrisome part is that anything Obama does to "pay" for this program is something that cannot be done to "pay" for our growing Medicare problem.  Slashing provider reimbursements, Medicare advantage, etc, if it is done, is something that should be done in order to close the projected 3.4% budget gap in 2019.  Once we've used them for new entitlements, we are less able to pay for the entitlements we've already got.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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