Wednesday, March 24, 2010

Politicians say the darndest things: More on how much health care costs when it's free

It takes some nerve to claim that a massive new federal entitlement is going to save the taxpayers money, but anything goes in Washington when it comes to political rhetoric. Everyone is talking about how the CBO is claiming that the President's new health care plan is going to save $1.3 trillion. No joke.

But here is Fred Barnes explaining this whole process of claiming how thrifty you are going to be when you pass entitlement legislation and how taxpayers end up buried underneath the bills when the big federal program gets a good head of steam:

Take Medicare, enacted in 1965. The initial projection was it would cost $9 billion a year by 1990. The actual figure for 1990 turned out to be $67 billion. According to the Congressional Budget Office, the baseline for Medicare in 2010 is $521.3 billion, which includes $55.3 billion for the prescription drug benefit approved in 2003.

Or take one part of Medicare, the End Stage Renal Disease program (ESRD) that entitles every sufferer, regardless of age, access to dialysis. It was created in 1972 and its spending for 1974 was projected at $100 million. The real cost was $229 million. In 2007, ESRD cost $23.9 billion, nearly 6 percent of Medicare’s overall spending that year.

Or take Medicaid’s program of “disproportionate share hospital” payments. Passed on 1987, it was projected to cost less than $1 billion in 1992. Its actual cost in 1992: $17 billion. The program’s cost would still be ballooning if it hadn’t been brought under control by the Balanced Budget Act of 1997.

These faulty projections are not exceptions to the rule. They are the rule. The projection for the first year (1948) of the National Health Service in Britain was 260 pounds, far below the real cost of 359 pounds. The under-projections have continued to miss the actual demand for health services.

In Massachusetts, the universal coverage plan was predicted to cost $472 million in 2008, but the price tag turned out to be $628 million. Now Governor Deval Patrick wants to cap insurance rate increases to less than 5 percent annually, which would force insurance companies to cut payments to providers or quit the program. In 1994, Tennessee sought to control Medicaid spending with a new program called TennCare. By 2004, costs had more than tripled.

Read the rest here.


Thomas said...

Medicare costs exploded precisely because there was not a sufficient mechanism to control costs, which also happens to be one of the significant advantages of this bill.

The reality is that health care costs have exceeded what has been projected in both the public and private realm, because of bad incentive structures, massive overhead, etc. It would be nice to see an analysis of how those will work, and, if you don't think they will, an alternative plan. Keep in mind that the US' health care costs have been rising at a faster rate than most countries with socialized medicine, with lesser results.

Thomas said...

It would be nice to talk about the particular provisions that aim to do this, such as the exchanges, the requirement that hospitals post their costs, the brilliant tax on tanning beds (which both generate revenue and discourages people from giving themselves skin cancer), the bundling programs, and so on.

Thomas said...

Barnes' claim that the CBO takes legislation at face value appears to be a falsehood. The CBO was actually quite conservative on some claims, and even refrained from projecting any savings on certain mechanisms that were designed to raise funds, because they were fairly experimental. In fact, the CBO was criticized for being too conservative in its estimate. Since this claim is fairly crucial to your case, do you have any reason to endorse its accuracy?

Thomas said...

It's also quite dishonest of Barnes to not talk about the Medicare drug benefits projections from 2003: where the CBO overestimated the expenses.