Cost Estimates for Health Reform Are Nonsense
By Lawrence A. Hunter, Ph.D.
Back in the day, when I was minority staff director of the congressional Joint Economic Committee, Texas A&M economist Morgan Reynolds and I co-authored a report on HillaryCare then under consideration by the Congress. The report was titled “A Billion Dollars A Day” [HERE IS ACTUAL LINK: http://pmcms.socialsecurityinstitute.com/news/policy-papers/a-billion-dollars-a-day/] referring to the true cost (i.e., after all the unrealistic assumptions were discounted) of President Clinton’s plan to nationalize health care and turn it over to Hillary to run. The Congress rejected HillaryCare, in part, because the price tag was so astronomical.
Fifteen years later, another new president and a Congress controlled by his party once again are trying to nationalize health care and turn it over to the government to run.
Depending upon which estimates one accepts – every one of them much too low if history is any guide – the program is projected to cost between a trillion dollars and one-and-a-half trillion dollars during the first 10 years of operation. That works out to an average annual cost of $100 billion to $150 billion, or somewhere between $274 million and $411 million a day.
What’s wrong with this picture? This estimate is only 27 percent to 41 percent of what we estimated HillaryCare to cost 15 years ago, yet the Obama administration has set its aim just as high. The Obama figure is even more eye-popping when one factors in inflation since then.
According to the special Consumer Price Index that measures medical-care inflation, the cost of health care has gone up 80 percent since HillaryCare was on the table. In today’s dollars, a billion dollars a day in 1993 would amount to $1.8 billion a day today, or $658 billion a year – $6.6 trillion during the first decade.
How on earth does the Obama administration claim it is going to restrain the cost of nationalizing 17 percent of the U.S. economy? First, many of the increased costs will be forced on people and their employers surreptitiously through mandates and regulations that keep the costs from showing up on the public budget—call it AIG accounting. Second, Administration officials speak sonorously of “cost control,” which sounds a little too much like “lock box” for comfort.
One of the schemes the president is counting on to control health-care costs is reducing spending by centralizing and computerizing health information technology. Yet, the Congressional Budget Office (CBO) recently estimated that health information technology as provided for in the recently enacted stimulus bill would reduce health-care spending by only about 0.3 percent. Hence, the main source of cost savings will have to be rationing health care through an innocuous-sounding concept called “comparative effectiveness research,” which will allow bureaucrats to delay and deny care on the grounds it is not “effective.”
One thing we learned from the Medicare experience is that original estimates of radical new government programs are vastly understated because of government’s inability to control program costs and the impossibility of imposing economy-wide price controls (by whatever name) on an entire industry. But price controls and spending caps it will be, just as it was with HillaryCare, followed by health-care rationing, just as it has been with Medicare. And although these bureaucratic machinations will harm people, they won’t appreciably hold down costs.
At its inception in 1966, Medicare cost $3 billion. At that time, the Ways and Means Committee of the U.S. House of Representatives projected “conservatively” that the program would cost approximately $12 billion by 1990. In 1990, the cost of Medicare was actually $107 billion – nine times greater.
All of this deficit spending notwithstanding (we are all Keynesians once again it seems) one might argue it would be worth the price tag to achieve universal health coverage. But will Obama & Co. actually achieve this Holy Grail? Not even close. According to the CBO, even assuming Congress enacts an individual health-care mandate (i.e., a requirement that everybody obtain insurance), somewhere between a fourth and a third of the uninsured still would not have coverage.
It may be impossible to project the cost of next-gen HillaryCare with precision, but the administration’s current estimates are so far askew from historical experience, so at variance with past estimates of similar programs and based on so many dodgy assumptions that they are quite simply unbelievable.
Dr. Hunter is former staff director of the congressional Joint Economic Committee and currently a senior fellow at Americans for Prosperity (www.Americansforprosperity.org <http://www.Americansforprosperity.org> ) and president of the Social Security Institute (www.socialsecurityinstitute.com <http://www.socialsecurityinstitute.com>)