After Passage, We Learn the True Cost of Federal Health Care Reform

Liberals and conservatives agreed on one thing during the health care debate: the cost of health care in the United States is not sustainable. Last year we spent $2.2 trillion, or 17% of the United States’ gross domestic product (GDP), on health care. Without some type of reform that number will rise to an unrealistic 30% of GDP by 2030. From an economic standpoint, this could never happen.

We were assured by the Obama Administration over the past two years that federal health reform would bend the cost curve down and actually decrease the federal deficit. Based on those assurances, Congress passed legislation with narrow partisan support and over the objections of substantial bipartisan opposition.

The original cost estimate of the new law was $940 billion over ten years, which we were told would decrease the deficit by around $100 billion. Over half of the funding would come from Medicare cuts and around $400 billion would come from new taxes. Paying for the Medicaid expansion and funding the government subsidies in the new insurance exchange would each account for roughly one half of the expenditures in the legislation.

Unfortunately, but not surprising, the number $940 billion turned out to be wrong. The Congressional Budget Office (CBO) re-examined the legislation after it passed into law. The bill is filled with unclear language and on further review, CBO analysts found additional costs of at least $115 billion. This wipes out any deficit reduction promised by health reform and puts its cost over $1 trillion.

The CBO went on to say that highly-touted preventive care and pilot projects in the law are unlikely to reduce costs and may actually increase costs.

Richard Foster, the federal government’s chief actuary, also examined the legislation after it passed. He reports health care costs will increase from 17% to 21% of GDP in ten years and that spending would go up by at least $311 billion. He further says the legislation will cause net federal spending to rise. The new taxes on drugs and medical devices as well as the excise taxes on insurance premiums will simply be passed on to patients.

Foster estimates that 14 million people, mostly from small firms, will lose their employer-sponsored health insurance. At least two million of these employees will be forced to enroll in Medicaid, bringing the total of new Medicaid recipients to at least 18 million.

However, no one knows the actual number of new Medicaid enrollees or the number of people who will receive taxpayer subsidies in the insurance exchanges. Government estimates are notoriously on the low side and as these programs expand, costs will explode.

The cuts to Medicare include $271 billion in lower doctors’ reimbursements over ten years, starting this year. Virtually everyone agrees that Congress will pass a “doc fix” in the next few months and will reinstate this $271 billion. As soon as this goes into law, the budget for the new health care reform will go into the red by another $271 billion. This is the kind of dilemma that arises when doctors are employed by the government, instead of being allowed to practice medicine in a normal, functioning marketplace.

By any measure, the true cost of the health care legislation is well over $1 trillion for the first ten years and in no way will it reduce the deficit. The legislation allows for ten years of taxes and Medicare cuts to pay for the first six years of benefits. Cost estimates for the second ten years, 2020 to 2029, run as high as $2.4 trillion, which will most certainly add to the federal deficit.

Unless it is repealed or drastically amended, the new federal health care law will cause costs to soar to unsustainable levels, will lead to price controls and benefit cuts, and will lead ultimately to government rationing of our health care.