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ObromneyCare, Part Deux: Estimation Boogaloo

Original post made by Tom Cushing on May 3, 2012

Okay, where were we? After a description of the major features of the Patient Protection and Affordable Care Act (ACA for short, or ObromneyCare if you prefer), you've been promised a treatment of its costs and the legal arguments regarding its constitutionality. Before we begin, I need a caveat.

There are at least three major problems with the former task. The first is predictable, in this era of partisan rancor: there is no end of information abroad in the land, but most of it is of the political axe-grinding variety. As such, it is designed to sell a position, not convey useful information to a hopeful electorate. Thus, it will focus on only the expenditure side, ignoring balancing revenue effects (e.g., penalties, excise taxes , and savings), or claim that costs have escalated mightily, when a later estimate simply includes more years of full implementation, or just unhelpful (Cf. the breathless "100+ new agencies" claim in a comment to a prior article). If your goal is to scare folks, it's easy to cough-up a scary-big number in the health-care field -- it comprises almost 20 percent of GDP.

The second problem is the inherent complexity of the prediction task -- predicting human behavior (Will the uninsured get coverage, or pay penalties? Will the many folks now eligible for Medicaid, but uncovered, get covered? Will the currently uninsured cost less to the system, because they won't wait for a crisis before they seek treatment?), and economic effects as many as ten years in the future (will the underlying economy be strong, meaning better employment and fewer uncovered individuals? How fast will medical costs escalate?). Depending on the assumptions you choose, you may determine your outcome -- and you know what your mama taught you about what else assumptions do.

Finally, estimation accuracy is compromised by byzantine mess of a payment system that currently exists. Not only is it impossible to accurately assess actual or comparative costs at an individual level (if you've had recent surgery, you know what I mean) – it's also nearly impossible to roll-up those separate unknowables into a comprehensible whole. Further, what do we do with all the costs of treatment for the uninsured, mandated since the 1980s, but unfunded? They are a substantial fraction in these calculations, and currently borne by...whom? Some costs are reimbursed by various level s of government, others by higher premiums for everyone, others go unpaid and enter the tax system by that route.

So, the task is daunting, and may be a fool's errand, but the latest Congressional Budget Office figures to be brutalized above are as follows, for the decade 2012-21:

Gross cost: $1,496 billion (Medicaid, children, and small business subsidies)

minus Offsets -$413 billion (excise taxes and penalty collections)

Net cost: $1,083 billion

Other federal budget effects (from earlier estimates, not updated recently):

Spending reductions: -$732 billion (Medicare changes)

Other revenue: -$520 billion (payroll and other taxes)

Net deficit effect: -$231 billion (that's right – CBO estimates ACA reduces the deficit).

So, there you have it, for what it may be worth. Individual effects will, of course, depend on your tax bracket, your age, current coverage, whether you are covered by hugely generous plan, and payroll tax exposure.

As to whether these numbers resolve the issue of whether anyone ought to support or oppose ObromneyCare -- I do not think that answer is here. That decision better relates to values issues: your view of the proper roles of government, individual responsibility, empathy, and whether you believe, as I do, that the current mess is unmanageable, corrupt, and needs a major overhaul.

You were promised some coverage of the legal issues -- mostly whether the federal government has the power to enforce an individual mandate. Frankly, that's been covered elsewhere, ad nauseum, so unless there's an upheaval in the Comments (meaning more than one-or-two curious souls), I intend to move on to other matters next week.

Comments (6)

Posted by TL Nelson, a resident of Danville
on May 5, 2012 at 1:11 am

This author is just regurgitating the same Democrat propaganda numbers on the Health Care Reform Law.

Looking at a 10 year period greatly confuses the issue since the costs are just ramping up in the early years of this period. It is better to look at a particular year towards the end of the period when the program has been fully implemented. This produces a much different picture. The annual cost is more than double what has been represented. The impact on our deficit and overall economy will be devastating.

This law hurts 95% of Americans in order to help 5%. There are simpler, fiscally responsible ways to accomplish the same objectives without the devastating effects of this misguided legislation. It must be repealed and replaced by legislation that is actuarially sound and does not involve government takeover of our health care system.

Posted by Tom Cushing, a resident of Alamo
on May 5, 2012 at 7:00 am

Interesting you should make that claim on this entry, TL -- did you even read it?

I wasn't looking for support or opposition -- I was trying to get to credible numbers to inform myself first, and then write it up. In fact, when you set about to google for information on these costs, you have to wade through a swamp of partisan claims, mostly from the strident opposition, which led to my caveat in paragraph two.

I eventually decided on the CBO figures, not because they're perfect (they're not), but Because.They're.Non-partisan. As such, they are distinctly Not propaganda -- they are an imperfect resource, but attempt to convey information to guide policy. I've also complained before about the ten-year horizon they use, but that may actually be appropriate here because of the long lead-in to full implementation. As I also wrote, the later numbers may suffer from inherent underlying uncertainty about important assumptions.

The 2012-21 numbers aren't too bad in terms of your full implementation complaint -- interestingly, they actually show a drop in net cost during those later, full-implementation years, but everyone knows it's a crapshoot. I will personally be surprised if this legislation ends up deficit neutral or better, but those are CBO numbers, un-managed by me.

Which is why I return to my conclusion that whether one should support or oppose ObromneyCare (which is working well in Massachusetts, by most accounts) is not found in these numbers, but in broader, deeper notions of how the world should work.

I'd add that the whole basis for this legislation came from think tanks on the right side of the aisle, not the left -- which is part of why Obama chose the approach. I believe that nothing this President proposes would ever be embraced by the GOP. More on that next week.

Posted by TL Nelson, a resident of Danville
on May 6, 2012 at 3:09 pm

Be careful when quoting the "non-partisan" CBO fiscal forecasts. The CBO is locked into using the assumptions that come from the authors of the legislation. In effect, they just take the assumptions on savings and revenue that have been provided to them an put them into a spreadsheet. Yes .. this is "non-partisan", but the assumptions behind the numbers are anything but that.

If you study the fiscal forecasts carefully, it becomes immediately obvious they are mainly "smoke and mirrors". The majority of the offsetting revenue to pay for Health Care Reform comes from savings in Medicare. This is great if these savings really materialize; but the problem is that Medicare is already underfunded (half of cost is paid from the general fund). Any savings in Medicare must be used to support Medicare, not pay for another completely new program.

If you take the 2019 cost of HCR and extapolate it over 10 year (without inflation), this law acutally costs $2.2 trillion, not the $1 trillion that Democrat propagandists would like you to believe. Costs born by individuals and private sector busiensses are not even included in the analysis or even estimated.

I would support a health care reform law if:
(1) It is managed by an independent board separate from the Federal government and budget. In this way American taxpayers will be able to see an annual fiscal statement of costs and benefits provided. The current law is so intertwined with other government spending that no one will ever be able to figure out the true cost.
(2) It is paid for by a broad based payroll tax (this tax can be progressive, but everyone who works should contibute something). The payroll tax would be adusted annually to keep the system fiscally sound. One of the problems with our nation is that everyone wants more services from the government, but they want someone else to pay for it.
(3) It does not put a government agengy (Dept of Health & Human Services) in effective control of the health care industry. Nearly every page of this 2400 page law contains new powers, authorities and regulations that effectively put our government in charge of the entire health care industry and insurance industry.

ps. Social Security and Medicare should also be managed completely separate from the federal budget and supported entirely by the payroll tax and earnings from the trust fund.

Posted by Danville Independent, a resident of San Ramon Valley High School
on May 9, 2012 at 9:16 am

Good Report Tom, and you're right, this issue really can't be totally dissected because of it's enormous entanglements. I DO know one thing for sure: our Health Care services are controlled by three entities: Health Insurance companies, Pharmaceutical companies, and lobbyists. The one aspect that I truly like (and I didn't see a mention in your posting), is that it limits the profits of the Insurance companies. it requires that they spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs. Right now? There are many companies that only spend 50%, pocketing the other 50%: pure (and obscene) greed, as far as I'm concerned. This reform will be rectify this injustice, at the very least!

Posted by McGloin, a resident of Walnut Creek
on May 10, 2012 at 11:31 am

Curious there is no mention of all the affirmative action special programs going on to crank out unqualified doctors. Makes it much easier to terminate granny when her illness becomes not cost effective under Obama's death panels.

Posted by Citizen Paine, a resident of Danville
on May 10, 2012 at 12:05 pm

Is that an actual serious comment, McG? If so, you might want to ask your own doc to adjust your dosage.

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