October 18, 2009

Health Care's Hidden Costs - Part 1

Last week the Washington Post reported on the Congressional Budget Office's estimates of the two competing house versions of the health care plan.
Congressional budget analysts have given House leaders cost estimates for two competing versions of their plan to overhaul the health-care system, concluding that one comes within striking distance of the $900 billion limit set by President Obama and the other falls below it.

House leaders have been working to lower the cost of the $1.2 trillion health-care package they offered in July. The report from the Congressional Budget Office, a copy of which was obtained by The Washington Post, puts the cost of one plan at $859 billion over the next decade and the other at $905 billion.

The cheaper version would rely heavily on a more dramatic expansion of Medicaid, the government health plan for the poor that is funded partly by the states -- meaning already-strapped governors would have to pick up more of the cost of reform.

Compared with the original package, the two new proposals would offer less generous subsidies for people who need help buying insurance and do not have access to affordable employer coverage. Additional savings would come from reducing employer tax credits.
There are a number of important, yet seemingly unconsidered impacts of health care reform that should be added to the debate mix.

1.  The cost of population growth.
2.  The impact on rural versus urban citizens from a cost perspective.
3.  The impact on equality of access based on changes to Medicaid in one plan.
4.  The CBO has not yet addressed overall budget impacts of the plans.
Firstly, let's look at the issue of cost per person.  According to some optimisitic calculations from Open Left;
At a ten-year cost of $829 billion, the Baucus bill is estimated to provide 29 million more legal American residents with health insurance, for a total cost of about $2,860 per new person covered. By contrast, the House bills apparently each cover at least 33 million more legal American residents with health insurance ("more than 95%"), at a cost of $859 billion or $905 billion. That is a cost of $2,600 to $2,740 per new person covered, less than the Baucus plan.
  (emphasis added)

Since we're being optimistic (I don't for one second believe the forecast costs will remain at the levels they are projected to be), let's use the $2,600 cost per new covered person. 33 million uncovered people (all citizens OF COURSE...) represent 10.78% of the population of the country.

Recently I did an analysis on how ridiculous the Cap and Trade targets are mathematically, based on population expansion predicted for the United States.  The targets are unreachable It's just as bad with respect to health care.  Let's assume that the percentage of the population that would require the coverage costs associated with the health care bill (ostensibly the costs to provide the new coverage), stays the same over time.  Further, let's take the cost per person as static.

 With population growth this is what those costs will look like under the $859 billion plan ;

2020 - population will be 335 million - that's 36 million requiring coverage or a growth of 9.4% in costs.  With no other impacts than population  growth, that means the following decade the costs will rise to $940 billion.

2030 - population will be 363 million -  that's 39 million requiring coverage or a growth of 18.6% in costs. With no other impacts than population growth, that means the following decade the costs will rise to $1 trillion.

2050 - population will be $419 million - that's 45 million requiring coverage or a growth rate of 36.9% in costs. With no other impacts than population growth, that means the following decade the costs will rise to nearly $1.2 trillion.

That seems like a slow growth of cost compared to a 50% population increase over the same time.  But what it points out is that not considering future expansion of the program, future inflation or any other cost factors, just because there are going to be more people, the costs will rise 37%.

That's not encouraging as a standalone factor - it's going to get more expensive.  We all knew that.  That 37% increase is a baseline.  Any other changes will have a multiplier effect of 1.37 on costs by 2050.

There's more fiscal analysis to come as well as a look at the other factors mentioned above.  Stay tuned.

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