Putting the health-care bill's big numbers in perspective
Sunday, January 17, 2010
No matter what the players involved in the health-care reform fight want for the bill, they're all united in one respect: They want you to believe this is the biggest thing in the world. Republicans want you to believe it's a dangerous proposal that will wreck a sixth of the economy. Democrats want you to believe it's a marvelous bill that will fix the health-care system. The news media frequently take both claims at face value.
It's time for some real talk on health-care reform. By the standards of what Congress generally does in a year, this bill is very big. But by the standards of the health-care system, it's not that big at all. It goes two-thirds of the way on covering the uninsured. It makes a courageous, but insufficient, start on cost control. This is the beginning, not the end, of reform.
Let's begin by breaking down the numbers. The $900 billion price tag is repeated with the regularity of a rooster's crow. That's a shame, as the number is, somewhat impressively, misleading in both directions.
On the one hand, that $900 billion is stretched over 10 years. But people don't think in 10-year increments. They don't pay taxes once a decade. Put more simply, the bill will cost an average of $90 billion a year.
But that number is meaningless without context. Ninety billion is a lot more than you probably paid for, say, your house. But is it a lot of money in the context of national health-care spending? Not really. In 2008, we spent $2.3 trillion on health care. Ninety billion is about 4 percent of that. In other words, a drop in the bucket.
On the other hand, the bill wouldn't really kick in until 2014. There are two reasons for this. First, it takes a bit of time to set it up. Second, it's an effort to make the price tag, which is measured over 10 years, look lower than the true cost. To get a more accurate annual figure, look at a year in which the bill is fully operational. In, say, 2016, the bill's spending will be about $150 billion. According to the Center for Medicare and Medicaid Services, total health-care spending that year will be about $3.7 trillion. The bill will account for less than 4 percent of it.
So that's really what we're talking about here -- a health-care expansion that's a slight fraction of overall spending. Let's go even further: It's an expansion that most people won't notice in 10 years. According to the Congressional Budget Office, the Senate bill will change the insurance of about 40 million people by 2019, about 30 million of whom would have been uninsured. The other 10 million will come from the employer or individual markets in search of more affordable options. About 8 percent of the country will still be uninsured, though that falls to 6 percent if you exclude illegal immigrants. Ninety percent of Americans will be exactly where they'd otherwise be.
That accounts for the spending side of the bill. What about the cost control?
It's the same story, but more so. Although the bill solves most of the coverage problem, it accounts for a mere fraction of the cost problem. A new report by the centrist policy group Third Way estimates that the legislation will save more than $800 billion over the next 15 years. Again, that's a big number. Quite a bit more than my car cost, and I thought my car cost a lot of money. But the savings amounts to no more than a rounding error given the tens of trillions of dollars we're going to spend over that period.
Importantly, though, it's a rounding error in the right direction. The bill is thick with efforts to move toward cost control, if not efforts to actually impose cost controls. The excise tax, the Medicare Commission, the pilot programs to change how hospitals are paid and most of the other proposals are designed to bear fruit in the future. The excise tax -- which slaps a fee on high-cost plans in order to give a competitive advantage to those that hold costs down more effectively -- initially applies to very few plans but would hit more as premium costs rise. The payment reforms have to pay off as pilot programs before being considered for Medicare-wide -- much less systemwide -- use.
Some pundits respond to all this by flippantly demanding that the White House build more cost control into the bill. Putting aside the fact that this is Congress's joint, not the administration's, consider the difficulty of just one of the cost controls: The excise tax, which is too small as it is (and which shrank slightly after unions and liberals rebelled), remains only because the administration fought tooth and nail for it. Other efforts at cost control -- from a public option that could use Medicare rates to a cap on the employer tax exclusion to the global budgets that the Clinton administration proposed in the '90s -- were unceremoniously dumped from the bill.
But some will have to come back, eventually. And it will be much harder than just cutting costs one year. We tend to think in terms of spending cuts, which are painful but simple. We're going to need to think in terms of spending reforms. The problem with health-care spending is not that we spent $2.3 trillion in 2008. It's that that number has been growing by 7 percent annually. It's the rate of increase, and not the level of spending, that we need to change.
Consider again the $2.3 trillion we spent in 2008. Given the current rate of growth, in 2028, we'll spend $8.9 trillion on health care. Imagine, however, that we got really serious about cost control and cut $200 billion next year. If costs were to grow at the same rate, we'd still be spending $8.1 trillion in 20 years. Imagine, then, that we didn't cut a dollar -- but got cost growth down to 5 percent (which is still faster than wage or GDP growth). In that case, that $2.3 trillion would only be $6.1 trillion in 2028. That's actually manageable.
But changing the growth of the health-care system is a lot harder than just cutting a few dollars here or there. It requires us to change how doctors practice medicine, or how much medicine people buy or how much they need -- or maybe all three. We're doing a lot on health-care reform this year, but we're not doing that much. And we shouldn't fool ourselves into thinking otherwise. We'll be back at this again, and soon.