Can the government control health care inflation through subsidies?
First President Obama said critics of his health care plan had no ideas worth considering. Then he said he never said that. Now he says he is eager to hear those previously unacknowledged ideas.
Taking Obama at his word (always a risky thing to do), is there any realistic prospect that the meeting he plans with legislators from both parties later this month will, as he suggests, produce "some agreements" on how to proceed with health care reform? Not if he continues to ignore the conflict between his approach to expanding medical coverage and the other major goal he says must be addressed by any serious reform proposal: bringing health care spending under control.
Obama wants to cover the uninsured by expanding Medicaid and providing various other subsidies: to small businesses that buy insurance for their employees, to individuals who buy policies from a government-created "insurance exchange" and to high-risk patients with pre-existing conditions. That last group would be subsidized not only by taxpayers but by younger, healthier policyholders who would be forced to pay higher premiums or to buy insurance they otherwise would have gone without.
The Senate health care bill would spend $1.8 trillion during the first decade after it fully takes effect in 2014 to cover some 30 million people (out of an estimated 46 million without insurance), and that's leaving aside the unfunded mandates imposed on states, employers and individuals. Yet in his interview with CBS News anchor Katie Couric on Sunday, Obama said "the package that we've put together" will "start bending the cost curve on health care" and "cut the deficit by a trillion dollars." How is that possible?
The $1 trillion figure, which Obama misleadingly attributed to the Congressional Budget Office (CBO), is highly speculative. The CBO estimated that the Senate bill would reduce the deficit by $130 billion in the first decade after it was enacted through a combination of higher taxes and Medicare cuts.
The CBO also more tentatively projected that if Congress retains its planned reductions in the growth of Medicare payments to providers (instead of rescinding them, as it always has in the past), the savings could amount to between 0.25 and 0.5 percent of gross domestic product in the second decade. Using generous assumptions, the Obama administration converted that highly uncertain estimate into a nice round figure of $1 trillion.