January 12, 2010
Let’s say your spouse sends you out to buy a quart of milk and you take along a bag of soda cans to return. You use the deposit from the cans to buy the milk. Was the milk free?
Of course not. But that’s the logic the government uses when it says the Senate health care bill can provide insurance to 31 million previously uncovered individuals and still have money left over.
The Christmas Eve passage of the health care bill by the Senate carried with it the promise of reducing the Federal budget by $132 billion over the next decade. The Obama administration and prominent economists, among them Paul Krugman, have argued that this proves we can provide universal coverage while reducing the deficit.
The goal of universal insurance is laudable, but a key question that must be answered is at what cost. The Senate bill could indeed save $132 billion – although that would require a number of aggressive assumptions to prove realistic – but there is a substantial and inescapable cost to providing universal coverage.
That cost is obscured by the budget estimates produced by the Congressional Budget Office (CBO).
On December 19, the CBO published its analysis of the Senate bill showing the $132 savings. The CBO estimated that the Senate bill would cost $871 billion in subsidies, offset by $149 billion in savings from taxes on “Cadillac” health care plans and $108 billion in other savings, bringing the net cost to $614 billion.
That $614 billion would be offset by $747 billion in savings, consisting of $483 billion in Medicare spending reductions and $264 billion in increased federal revenue, most of which is from excise tax on the Cadillac plans.
The difference between the $747 billion in savings and the $614 billion in costs yields the $132 net savings.
The game that is being played is the inclusion of the $483 billion in Medicare savings – the soda cans you returned to pay for the milk. These have absolutely nothing to do with providing universal coverage, and could be achieved independently, whether the Senate bill passes or not. Those savings come primarily from reducing Medicare Advantage overpayment and reducing the market-basket adjustment for hospitals.
Once you back out the Medicare savings, the real cost of providing universal coverage over the next ten years, based on the CBO estimates, is $351 billion, not a $132 billion savings.Display article as PDF for printing.
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