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Some Observations on the Real Cost of Obamacare:

As the various options for paying for Obamacare surface, are waved in front of the public, and then adjusted, we can see that the funding for either Bill, the House Bill or the Senate Bill, requires several serious adjustments in Medicare and taxes.   

Roughly half of the added cost is coming from a reduction in total spending in Medicare, during time when there is a real increase in total Medicare recipients.   The effect of this has been discussed quite well by Pipes and McCaughey in separate articles and even videos.  The upward pressure on Medicare costs will be real unless the construct of the program is revised, and a more patient centric than the current one, is installed.  Clearly the cost shifting of Medicare and Medicaid are not being fixed in Obamacare, but rather are being increased.

CBO AnalysisIn addition, the CBO analysis of the House Bill has the total cost increase for Obamacare at about $1T for a 10 year period.  Seems huge, but when you see that it is a forecast of an increase of only 10% of the total healthcare expenditure, it seems a bit optimistic, from an intuitive point of view.   We are seeing that the forecasts in Massachusetts were very optimistic.  So the total cost could easily be larger, and we will not see until we can measure it.

So what can be said about the accuracy of these forecasts for a entitlement such as Medicare?  WSJ writes:

As for the spending, when has a new entitlement ever come in under budget? True, the 2003 prescription drug benefit has, but those surprise savings derived from the private insurance design and competition that Democrats opposed and now want to kill. The better model for ObamaCare is the original estimate for Medicare spending when it was passed in 1965, and what has happened since.

That year, Congressional actuaries (CBO wasn’t around then) expected Medicare to cost $3.1 billion in 1970. In 1969, that estimate was pushed to $5 billion, and it really came in at $6.8 billion. House Ways and Means analysts estimated in 1967 that Medicare would cost $12 billion in 1990. They were off by a factor of 10—actual spending was $110 billion—even as its benefits coverage failed to keep pace with standards in the private market. Medicare spending in the first nine months of this fiscal year is $314 billion and growing by 10%. Some of this historical error is due to 1970s-era inflation, as well as advancements in care and technology. But Democrats also clearly underestimated—or low balled—the public’s appetite for “free” health care.

Here is a video report as well:

So far we have roughly a $500B or more that has to come directly from the tax payers.   The popular notion that the rich can once again cover this and presumably other social programs is less and less viable.  As Henninger writes, the high marginal tax rates are much higher than the rich supporters of Obama had bargained for, so that seems less likely.   The result is that a good portion has to come from the middle class.   The article on taxes paints a bleak picture of how this large sum and the subsequent need for more money will be raised.  The middle class will pay for this dearly.

Carl Rowe wrote:  The House version of Mr. Obama’s health-care—excuse me, “health-insurance”—reform already has four taxes that will largely be paid by people making less than $250,000 a year. There’s $8.2 billion in taxes for using health savings accounts and other tax-free medical savings vehicles to purchase over-the-counter drugs. There’s an 8% tax on employers who don’t offer insurance: The Congressional Budget Office says workers in those businesses would pay the $163 billion cost via lost wages.

There’s a 2.5% “Tax on Individuals Without Acceptable Health Care Coverage” in the House bill that applies to people who either don’t have insurance or whose policies the government deems inadequate. Finally, there’s a $2 billion “Comparative Effectiveness Research Tax” on all private and “public option” insurance policies.

So what are the alternatives?  Drive down costs, for installed a large entitlement program is just not viable.  CAHI provides more data on the patient centric approach and what it could mean to cost reduction.  The HSA account approach has real benefits in reducing the core costs of healthcare, despite that notion that Congress is considering a tax on HSA accounts.   

From CAHI promoting affordable insurance: A survey of employer plans conducted by the Kaiser Family Foundation in 2008 found that the average annual premium for a family plan totaled $13,100 for HMO coverage, $11,600 for a PPO, and $9,100 for an HSA. The average premium for single people totaled $4,800 for HMOs and PPOs, $4,500 for an HRA, and $3,500 for an HSA. Aetna recently reported that over a six-year period, employers who switched to a consumer driven plan saved $21 million per 10,000 employees.

Instead of taxes, Congress should install more HSA accounts in all sectors of the wealth curve.  Since Obamacare will place upward pressure on the cost per person, as the decisions on healthcare become less patient involved, one could guess that a 10 to 20% increase in the cost per person could easily be realized, if the CAHI numbers above are any indication.   That could result in a multiplier of 2-3X over what the CBO is now estimating, if the demand and efficiency are not adjusted. 

Efficiency improvement is a hard sell, if the government is running it.  The Post Office just indicated a $2.4B loss this past quarter, so any bets on how the Public Option, Post Office Care, will be contained? The result then has to be higher taxes and reduced service, and as well, rationed care.   the decline of medical research will also result in a hidden tax on our future possibilities, and the loss of life all over the world, since the ROW relies on us. 

The differences between Obamacare and the Patient-centered approaches proposed on this website and other paces, are very real and very large.