Will Health Care Reform Pay Its Own Way? Wrong Question

Will Health Care Reform Pay Its Own Way? Wrong Question

The Fiscal Times

If our new health care system makes us all healthier and longer-lived, as some proponents predict, there’s one condition it can’t cure, at least not right away: doubt.  Since key provisions don’t kick in until 2014, skeptics have lots of time to snipe at the law, its prospects for success and, of course, its forecast costs.

The baseline estimates of health care reform costs come from the Congressional Budget Office. The CBO is authoritative, but that doesn’t mean that everyone buys its projections. According to CBO, the law will cost $938 billion over 10 years but will, through a variety of tax hikes and cost cuts, actually reduce the budget deficit by $124 billion.

Washington proposes to extend health insurance to 32 million people, subsidizing families that make up to $88,000 a year, and it doesn’t balloon the deficit? Skeptics have been circling. Former CBO director Douglas Holtz-Eakin argued in a New York Times op-ed that once you strip out what he called the law’s accounting gimmickry, health care reform will increase the deficit by $562 billion. Holtz-Eakin’s math triggered a vigorous rebuttal from reform supporters, “I think that’s what’s technically known as a ‘lie,’” economist Paul Krugman wrote, referring to one of Holtz-Eakin’s assertions. Still, the doubters have the upper hand: According to a Gallup poll on health care reform taken a week after Obama signed the law, a solid majority of Americans think it will make both budget deficit and health care costs worse.

I, for one, was inclined to side with the skeptics. But having read their claims and the rebuttals, I think it’s quite possible that the law may indeed cover its own costs, and maybe give back change. But that’s the wrong issue to be fighting over.

For one thing, there isn’t  much to gain by debating the wonkery behind CBO’s projections. No one seriously believes that CBO skews estimates to make political points. Indeed, the record suggests that the CBO is as likely to overestimate as to underestimate health care program costs. As Alec Phillips, an economist at Goldman Sachs (not exactly known as a mouthpiece for liberal causes), told his clients: “There isn’t much reason to doubt CBO’s underlying analysis, given their expertise on these issues and their generally good track record with estimates of prior health legislation. In fact, [in both 2003 and 1997] CBO estimated more spending than actually occurred.”

The biggest risk to the projections probably isn’t math; it’s politics. All bets are off if Congress loses its nerve when it comes to implementing some of the law’s tougher tax increases or cuts in Medicare or Medicaid payments. That’s not impossible. Atlantic Monthly economics writer Megan McArdle predicts, “At least one of the [law’s] major funding sources, and possibly all of them, will be substantively repealed.”  Still, neither McArdle nor Holtz-Eakin—nor the law’s supporters, for that matter—knows any more about how future Congresses will behave than does the CBO.

Suppose, though, that all the CBO assumptions are true. Suppose Congress stays the course on all the tax hikes, fees, penalties and cost cuts through 2019 and beyond, and health care reform indeed cuts the deficit by $124 billion (a drop in the deep quarry of our national debt). What will that really mean? In terms of fiscal cash flow, it means Congress will have come up with more than $1 trillion of tax hikes and spending cuts, and then spent $940 billion of it on expanding health insurance. Yes, we’ll have a new and arguably better health care system. But we’ll still have the horrific deficits with which we started the year, and will already have fired a trillion dollars’ worth of our most readily available deficit-cutting ammunition.

That may be worth it if you believe expanding health care coverage is a moral imperative justified at any cost. Robert Samuelson, the Washington Post’s economics columnist, points to another moral duty: not to grind down future generations with unconscionable debt loads. “Forget about whether the CBO’s numbers are correct,” he says.  “I start with the idea that before you enact new spending programs, you pay for old ones."

In that light, it’s clear that the right question to ask about health care reform isn’t just will reform pay for itself? It’s also, will it cover the opportunity cost of the deficit reduction left undone?  The only way it can possibly do that is by reversing the runaway growth in health care costs.

The CBO estimate doesn’t credit the reforms just enacted with any such effect. But David Cutler, Harvard economist and health care adviser to Obama’s campaign, believes that the law will help sweat out inefficiencies in health care delivery that today waste as much as 30 percent of health care spending. The potential savings, in his opinion, come to $600 billion.

Such assertions are tough for laypeople to evaluate, and invite more wonkish showdowns with critics. But considering that reform is now the law of the land and that health care costs will surely bankrupt us if we don’t control them, we have to hope Cutler is right. “This law includes virtually every idea that might work to control costs,” Cutler says. “It’s not clear what’s left to try if this doesn’t work.”

Reporter: Temma Ehrenfeld
Eric Schurenberg is editor-in-chief of
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