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Frum Forum


Counting the True Cost of Obamacare

March 21, 2010

By David Gratzer

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.

Original Source:



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