One of the main selling points of health care reform was that it would cut the federal deficit by a supposed $143 billion over the next decade and a trillion-plus dollars in the one after that.
But not only will the legislation not cut one thin dime from the deficit, it will also certainly cost far more than the $940 billion in new spending already on the table for at least three reasons.
These include:
1. Legislative Trickery. Congressional Democrats have pledged support for "the doc fix," a permanent upward adjustment to the rates at which Medicare providers are reimbursed. As Speaker Nancy Pelosi has said, "We have made a commitment to do this. This is very important." The cost of the "doc fix"? Some $247 billion over the next 10 years, wiping out any deficit reduction from health care reform.
2. Higher Premiums. In 2006, Massachusetts passed health care reform very similar to what President Obama just signed. The result? The Bay State now has the highest premiums in the country and cost about 33 percent more than expected.
3. Bad Accounting. The government is terrible at predicting how much programs will cost, especially when it comes to medical care. Initial 1960s' projections of Medicare's costs in 1990 had the program costing about $12 billion; the actual result was almost 10 times that amount. As a Joint Economic Committee report notes, "Major health care proposals have almost always cost more...than the highest cost estimates published while the legislation was pending."
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Our government is pretty notorious for underestimating costs. A recent accounting article described how the government estimated implementation of Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) at $91,000 per company. The article cited a survey that estimated actual cost to Fortune 1000 companies to implement SOX Section 404 at $5.9 million per company. $91,000 versus $5,900,000. That's a pretty big difference.
ReplyDeleteArticle citation:
Hammersley, J. , Myers, L. , & Shakespeare, C. (2008). Market reactions to the disclosure of internal control weaknesses and to the characteristics of those weaknesses under section 302 of the Sarbanes Oxley Act of 2002. Review of Accounting Studies, 13(1), 141-165.