Beyond the $1.6 trillion sticker shock

John Holahan, director of the Urban Institute's Health Policy Center, writes about the recent CBO budget estimate of the Senate Finance Committee's health plan and puts the cost estimate into context.

The Congressional Budget Office (CBO) recently estimated the cost of the Senate Finance Committee’s health plan to be $1.6 trillion. That eye -bulging estimate led the committee to stop dead in its tracks and begin to develop a new plan that would cost closer to $1.0 trillion.

So is $1.6 trillion a lot of money?  In most contexts, it truly is. But in the context of the health reform debate the number needs to be better understood. My colleague Linda Blumberg and I recently sought to put the $1.6 trillion estimate into perspective. Let’s look at the facts:

First, what most people don’t realize is that the figure represents costs over a 10-year period. Between 2010 and 2019, the total amount of gross domestic product (GDP) is projected to be $187 trillion, according to the CBO.  Thus, the estimated gross costs of health reform are less than 1 percent of the GDP over that period.

In addition, the CBO estimate does not take into account the public and private savings that would result. For example, multiple threads of public spending currently devoted to financing uncompensated care could be reduced substantially, if not eliminated. Such offsets will likely reduce the net new spending attributable to comprehensive reform to about $1.2 trillion, making the net costs of reform an even smaller fraction of GDP.

Significant private savings would also be generated. Some individuals, particularly those in bad health, who are now paying large amounts out-of-pocket for medical care would pay less in the reformed system, resulting from public subsidies and guaranteed access to comprehensive insurance with broad-based risk pooling.

And third, the costs associated with not reforming the system are enormous. We recently analyzed  changes in coverage and expenditures for a 10-year period, if reform was not enacted. Under any economic scenario, the analysis shows a tremendous strain on business owners and their employees over the next decade if reform is not enacted. There would be a dramatic decline in the percentage of people insured through their employers, and millions more would become uninsured bringing the total number of uninsured up to 60 million. There would be large growth in public programs, and major increases in health care spending and levels of uncompensated care. While all income levels would be affected, middle-class working families would be hardest hit.

So the $1.6 trillion figure cannot and should not be evaluated out of context.  We first need to recognize that health reform costs are usually discussed using 10-year numbers, and then we need to look at these numbers within the perspective of current health care spending and national income.  Finally, we must take into account the potential savings to the public and private sectors that could come with significant reform, recognizing that the costs associated with inaction are at least as big as the costs of directly addressing the problems we currently face.   

Comments

[Swimmer]

Why not mention the biggest threat to health care, frivolous ambulance chasers that makes it almost impossible for hospitals and healthcare professionals to exist, for companies to do research etc. In addition, the $1Trillion + comes on top of the current government spending spree in the form of various stimulus packages. You must put that in that context as well.

[Carmen]

I work in a County Hospital where undocumented people do not pay a cent, but legal residents and USA citizens have to pay, in a 2 bed room I tell to one you do not have to pay we will give you a car seat, vouchers for transportation to doctors visits plus milk diapers,etc. The other has to pay a $500 copayment and we do not give nothing else.Guess who gets all for free, not the taxpayer.
I am a cancer pacient and tired to pay for others, if they want insurance they should work, indigents get Medicaid that pay for more care than Medicare.

[JEB]

Check out State Representative Jeff Fitzgerald at REP.Fitzgerald@legis.wisconsin.gov.

Health Insurance now trying to pass will force you to use government health insurance if you change from your current coverage. This will wipe out insurance plans and put businesses out of business. It is pure Socialism and ruin to our proud USA.

[Jack Lohman]

Of course the senate version adds $1.5 trillion. They left the insurance bureaucracy in the loop.

Jack Lohman
http://SinglePayer.info

[Sinclair Kinsey]

I don't think that private insurance companies should be in the health care business. They have other services to provide that consumers need by witch they can continue to make huge profits.

[jim uhlmann]

How absurd to believe that government actions are any different than farming... it's all about the seed and in government operations it's all about the plan. this is a political plan that will not work any better than any other govt action. to fix america's health problems we need to return to responsible eating and living and consider the consequences of the high profits and price gouging of the entire medical business world. perhaps there is a doctor out there somewhere who is willing to lead the charge?

[Paul DeCamillis]

There is an old axiom used in business..."if it's a good deal today, it'll be a good deal tomorrow or a week from now". I wonder what all the people pushing for quick health care reform will think about this deal in future if it's enacted? GET THE DEAL DONE CORRECTLY, NOT QUICKLY!

[hsr0601]

Good News !

A staff writer at The New Yorker and some experts have examined Medicare data from the successful hospitals of 10 regions, and they have found evidence that more effective, lower-cost care is possible. Thankfully, the provisions in the reform include more expansive policies than they have.

Please be 'sure' to visit http://www.nytimes.com/2009/08/13/opinion/13gawande.html?hp for credible evidences !

Some have followed the Mayo model with salaried doctors employed, Other regions, too, have found ways to protect patients against the pursuit of revenues over patient.
And a cardiac surgeon of them said they had adopted electronic systems, examined the data and found that a shocking portion of tests were almost certainly unnecessary, possibly harmful.

According to analysis, their quality scores are well above average. Yet they spend more than $1,500 (16 percent) less per Medicare patient than the national average and have a slower real annual growth rate (3 percent versus 3.5 percent nationwide).

Surprisingly, 16 % of about $550 billion (the total of medicare cost per year) is around $88 billion per year, except for Medicaid (total cost of around $500 billion per year), medicare 'alone' can save $880 billion over the next decade.

In addition, under the reform package, along with the already allocated $583 billion, the wastes involving so called "doughnut hole" , the unnecessary subsidies for insurers, abuse, exorbitant costs by the tragic ER visits etc are weeded out, the concern over revenue (below) might be a thing of the past.

(( Net Medicare and Medicaid savings of $465 billion + the $583 billion revenue package = $1048 billion - the previously estimated $1.042 trillion cost of reform = $6 billion surplus - $245 billion (the 10-year cost of adjusting Medicare reimbursement rates so physicians don’t face big annual pay cuts) = the estimated deficit of $239 billion ))

In modernized society, the business lacking IT system is unthinkable just like pre-electricity period, nevertheless, the last thing to expect is happening now in the sector requiring the best accuracy in respect to dealing with human lives. Apparently the errors by no e-medical records have spawned the crushing lawsuits (Medical malpractice lawsuits cost at least $150 billion per year), and these costs have led to the unnecessary tests, treatments, even more profits so far. And in different parts of the U.S., patients get two to three times as much care for the same disease, with the same result.

Thank You !