Pay or Save - Which will it be?

Well, for better or worse, the deed is done. On March 23, 2010, President Obama signed the Senate version of health care reform into law. Of course, the fight will continue as Congress debates whether or not to approve the House fixes to the bill. Meanwhile, the attorney generals of several states are filing law suits based on their belief that the bill’s requirement that everyone buy insurance is unconstitutional. Republicans talk of taking back the House and Senate come November, and then repealing the bill – highly unlikely as they would have to have a 3/5 majority to override a presidential veto. We are going to be hearing arguments about this for a very long time.

One of the most heated arguments revolves around whether or not this reform will save us money or send our deficits spiraling out of control. We’ve all heard the analysis from the CBO (Congressional Budget Office). It predicts the bill - with the House fixes – will save the federal government $138 billion from the years 2010 – 2019 and as much as $1.3 trillion over the next twenty years. If this is true, we should all be dancing in the streets! We just managed to insure 31 million more people AND save money. Trouble is, many people, and I’m one of them, find that a little too good to be true.

It’s not that anyone doubts the integrity or reliability of the CBO. The problem lies in the fact that the CBO can only predict the cost of a bill based on the numbers and information given them by Congress. Does anyone doubt the integrity and reliability of Congress? (That was a rhetorical question!)

For example, there is the double-counting in the Congressional figures given to the CBO. Part of the legislation includes collecting tax for a new long-term care policy. That money is counted as revenue to pay for the cost of this bill. HOWEVER, the money will be needed down the road when people stop paying into it and instead draw it out as they go into nursing homes. The same money can’t pay for both that AND insuring 31 million new people!

Congress tells the CBO that it will recover much of the cost for health care by taxing those “Cadillac” insurance plans. That plan is so unpopular, however, that it has already been postponed until 2013. Labor Unions, which typically win these employer-provided plans for their members, will fight implementation of the tax. If the tax does go into effect, employers will almost certainly start providing lower-cost (meaning lower-coverage) plans to their workers to avoid the tax. I wouldn’t count on much revenue there. Likewise, high earners will fight additional taxes on their investment income. Even if enacted, revenue from that will depend on how the economy is doing, something no one can predict.

The CBO also assumes there will be large cuts in Medicare and reimbursements to doctors and hospitals. Politically, this would be very difficult to enact. Already, Congress is promising a $200 billion “doctor fix” to increase payments to doctors. This is not counted as part of future health care costs because it will be in a separate bill, and the CBO can only score the bill placed in front of it.
History teaches us that the costs of entitlement programs are greatly underestimated. When Medicare was signed into law in 1965, it was projected to cost around $9 billion by 1990. It turned out to be $67 billion – over seven times as much! And now it turns out that Social Security will be out of funds even sooner than we had thought.

The CBO estimates the cost of the current health reform legislation at around $950 billion dollars over a ten-year period. Congress has proposed cuts and policies that they say will more than offset that cost. The problem is that we have to count on all those cuts being made and the policies working the way they are supposed to. That is assuming a lot. Future legislation can prevent any or all of it from ever taking place.

To be fair, there are parts of this legislation which do hold promise for cutting healthcare costs and reducing the deficit – if they are implemented wisely. More on that in next week’s column.