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spoonlessI have been wondering about this for a long time, but now that the Congressional Budget Office has released the numbers for the Senate healthcare bill, I figure it's a good time to ask.
Every time I read about the "cost" of various health care plans, I wonder what is really meant, and what their definition of a "cost" is and why they feel that's the right thing to label a cost. Here's an example:
http://news.yahoo.com/s/nm/20091118/pl_nm/us_usa_healthcare
So, the Congressional Budget Office says that the senate plan will "cost" $849 billion over the next 10 years. But they also say it will decrease the federal deficit by $127 billion over the next 10 years (and $650 billion more over the following 10 years). I remember having the same reaction to the CBO numbers on the house plans--how can you call it a cost if it is saving us money? Usually, spending more money on a government program you would expect to increase the deficit, not decrease it. With no change in the tax law, I would assume that the most sensible definition of the net cost of any program would be how much it increases the national debt. Here the deficit is decreasing, so the amount of federal debt you have at the end of 10 years would decrease by the same amount. which would mean the cost is negative, except for the fact that the bill does include a tax increase.
To state it more simply, the deficit is federal spending minus federal revenue. If you just increase spending without changing revenue, then I would think the cost is equal to the increase in deficit. If the deficit decreases due to increased spending, then clearly that spending should not be called a "cost", it should be called an investment or something else. When you pay some money and get some service in return, that's a cost. When you pay some money and get more money back, that's an investment that you made a profit on. I would never refer to the money that I give to my bank as the "cost" of banking. I'm giving it to them to hold onto so I can make *more* money. Yes, there is some cost of banking reflected in the difference between the interest they make off of my money and the interest they pay me, but this cost (what I'd call the "true cost") is far less than the total amount I'm paying to them initially... that's just not something that should be called a cost at all, in my book.
Now, this situation is not exactly the same as the bank account example, since in this case, there is a tax hike included in the bill. And I don't know what all the numbers are that went into coming up with these numbers, but I doubt that the increase in tax revenue is the sum of the two numbers they gave ($849B + $127B = $976B). If the new health care system is no more efficient than the current system, then I think their numbers imply that the bill includes a $976-billion tax increase, and that $849-billion of that money will be spent on healthcare while $127-billion will be spent on paying off some of the national debt. Except that one of the main purposes of health care reform is to save money on health care, since costs are spiraling out of control within the current system. The other main purpose is to make sure that more people are covered, which seems equally important, but I think the argument for keeping health care costs down is stronger and appeals to more people so it is usually cited as the primary reason for health care reform. Given this, you'd expect the numbers to not add up quite in the way I've described, since some of the deficit reduction would be coming from the increased efficiency of the new system.
So I guess what I'd like to know is what is the size of the actual tax hike? It seems like that would at least be more useful than the $849-billion number. Surely it isn't really $976-billion, because raising more money than you need and then using some of it to pay off the debt doesn't make much sense and would imply no increase in efficiency. But is it more or less than $849-billion? I would expect it's less, but I guess that depends on what their estimates are for how much waste in the current system is reduced. Whatever that number is, though, is it more correct to call that a cost or an investment? It seems like it is some of each, although mostly an investment. Like my bank account, most of the money is an investment, only a tiny fraction is paying for the actual cost of the service.
Then, another question is how do you figure out the "cost to society" once you know the "cost to the government"? If there's a public option, and you choose to pay your premium to the government under the new system rather than paying your premium to an insurance company, how does that affect the calculation of the cost to the government? If you're paying a lower premium, and getting the same service, then it seems like the net "cost to society" is negative (you were paying more before). And then while the government is presumably not going to try to make quite as large a profit off of your premium as the insurance company would have, if they do make some profit then that reduces the overall "cost to the government" of health care reform, but hopefully not as much as the overall cost to society of healthcare is reduced. Then there are administrative costs to the government, which would have been costs to insurance companies... also making the cost to society much less than the cost to the government.
According to KaiserEdu, the administrative costs of (government run) Medicare are less than 2% while the administrative costs of private health care are about 7%. I wonder if the CBO is assuming the increased efficiency of a government run program will be similar to the improvement you get with medicare, or better or worse. Given that the bloat factor is nearly 4 to 1 in favor of private industry having more beurocratic bloat in our current system, maybe there should be a slogan for the Obama era, "anything that can be done privately can be done publicly for a fourth of the cost".
Anyway, I would make a poll asking "is the true cost of health care reform positive or negative?" but there are so many different potential answers to that question I will leave it up to free-responses for whoever wants to take a crack at it. A related question would be, if you knew the cost was positive, in other words if you knew that society wouldn't save money on net by switching to the new system, would you still be in favor of reform (presumably because it would be a more fair system where everyone can afford health insurance)? I think my answer to this question is that I *think* the net cost is negative, but even if it is slightly positive it may still be worth doing. (And if the cost is large, like hundreds of billions, then it is not worth doing--at least, not in this way.) But if it is slightly positive, then I must admit I'm a bit outraged at the politicians who have all been lying to us, saying that reform is a way to "control spiraling health care costs".
Every time I read about the "cost" of various health care plans, I wonder what is really meant, and what their definition of a "cost" is and why they feel that's the right thing to label a cost. Here's an example:
http://news.yahoo.com/s/nm/20091118/pl_nm/us_usa_healthcare
So, the Congressional Budget Office says that the senate plan will "cost" $849 billion over the next 10 years. But they also say it will decrease the federal deficit by $127 billion over the next 10 years (and $650 billion more over the following 10 years). I remember having the same reaction to the CBO numbers on the house plans--how can you call it a cost if it is saving us money? Usually, spending more money on a government program you would expect to increase the deficit, not decrease it. With no change in the tax law, I would assume that the most sensible definition of the net cost of any program would be how much it increases the national debt. Here the deficit is decreasing, so the amount of federal debt you have at the end of 10 years would decrease by the same amount. which would mean the cost is negative, except for the fact that the bill does include a tax increase.
To state it more simply, the deficit is federal spending minus federal revenue. If you just increase spending without changing revenue, then I would think the cost is equal to the increase in deficit. If the deficit decreases due to increased spending, then clearly that spending should not be called a "cost", it should be called an investment or something else. When you pay some money and get some service in return, that's a cost. When you pay some money and get more money back, that's an investment that you made a profit on. I would never refer to the money that I give to my bank as the "cost" of banking. I'm giving it to them to hold onto so I can make *more* money. Yes, there is some cost of banking reflected in the difference between the interest they make off of my money and the interest they pay me, but this cost (what I'd call the "true cost") is far less than the total amount I'm paying to them initially... that's just not something that should be called a cost at all, in my book.
Now, this situation is not exactly the same as the bank account example, since in this case, there is a tax hike included in the bill. And I don't know what all the numbers are that went into coming up with these numbers, but I doubt that the increase in tax revenue is the sum of the two numbers they gave ($849B + $127B = $976B). If the new health care system is no more efficient than the current system, then I think their numbers imply that the bill includes a $976-billion tax increase, and that $849-billion of that money will be spent on healthcare while $127-billion will be spent on paying off some of the national debt. Except that one of the main purposes of health care reform is to save money on health care, since costs are spiraling out of control within the current system. The other main purpose is to make sure that more people are covered, which seems equally important, but I think the argument for keeping health care costs down is stronger and appeals to more people so it is usually cited as the primary reason for health care reform. Given this, you'd expect the numbers to not add up quite in the way I've described, since some of the deficit reduction would be coming from the increased efficiency of the new system.
So I guess what I'd like to know is what is the size of the actual tax hike? It seems like that would at least be more useful than the $849-billion number. Surely it isn't really $976-billion, because raising more money than you need and then using some of it to pay off the debt doesn't make much sense and would imply no increase in efficiency. But is it more or less than $849-billion? I would expect it's less, but I guess that depends on what their estimates are for how much waste in the current system is reduced. Whatever that number is, though, is it more correct to call that a cost or an investment? It seems like it is some of each, although mostly an investment. Like my bank account, most of the money is an investment, only a tiny fraction is paying for the actual cost of the service.
Then, another question is how do you figure out the "cost to society" once you know the "cost to the government"? If there's a public option, and you choose to pay your premium to the government under the new system rather than paying your premium to an insurance company, how does that affect the calculation of the cost to the government? If you're paying a lower premium, and getting the same service, then it seems like the net "cost to society" is negative (you were paying more before). And then while the government is presumably not going to try to make quite as large a profit off of your premium as the insurance company would have, if they do make some profit then that reduces the overall "cost to the government" of health care reform, but hopefully not as much as the overall cost to society of healthcare is reduced. Then there are administrative costs to the government, which would have been costs to insurance companies... also making the cost to society much less than the cost to the government.
According to KaiserEdu, the administrative costs of (government run) Medicare are less than 2% while the administrative costs of private health care are about 7%. I wonder if the CBO is assuming the increased efficiency of a government run program will be similar to the improvement you get with medicare, or better or worse. Given that the bloat factor is nearly 4 to 1 in favor of private industry having more beurocratic bloat in our current system, maybe there should be a slogan for the Obama era, "anything that can be done privately can be done publicly for a fourth of the cost".
Anyway, I would make a poll asking "is the true cost of health care reform positive or negative?" but there are so many different potential answers to that question I will leave it up to free-responses for whoever wants to take a crack at it. A related question would be, if you knew the cost was positive, in other words if you knew that society wouldn't save money on net by switching to the new system, would you still be in favor of reform (presumably because it would be a more fair system where everyone can afford health insurance)? I think my answer to this question is that I *think* the net cost is negative, but even if it is slightly positive it may still be worth doing. (And if the cost is large, like hundreds of billions, then it is not worth doing--at least, not in this way.) But if it is slightly positive, then I must admit I'm a bit outraged at the politicians who have all been lying to us, saying that reform is a way to "control spiraling health care costs".
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no subject
Date: 2009-11-19 06:38 pm (UTC)no subject
Date: 2009-11-19 06:42 pm (UTC)this other person lives off the government and off her partner and still has complaints about all the benefits she gets... and i'm saying that i'm thankful and she should be too...
but somehow i'm the asshole.
how do you figure?