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What Would Happen if we Delayed Health Care Reform?

Bossman Steve Pearlstein had a nice column yesterday arguing that budget hawks need to handle health reform with care. The Congressional Budget Office can only evaluate things we've already done. Those, of course, are the only policies we have data on. But that poses an issue. The thing about solving problems is that the solution is frequently the thing you haven't yet tried. As one senator said to me, CBO is like someone who tells you where you're going by looking in the rearview mirror.

For all that, they do their best. And someone needs to try to attach a rigorous cost estimate to pending legislation. But it would be foolish to ignore savings that CBO can't score. Foolish and costly. Drew Altman, CEO of the Kaiser Family Foundation, has noted that major opportunities for health reform have appeared, on average, every 19.5 years. That's a long lag. I e-mailed MIT economist Jon Gruber to ask what would happen if we went another 19.5 years with no changes. He did the math:

Health spending in 2008 is projected to be 2.4 trillion. The Center for Medicare and Medicaid Services projects that by 2018 they will be $4.4 billion which is 20.3% of GDP. Extrapolating out by assuming that the growth rate from 2017 to 2018 holds, then in 18 years (2027) we will be spending $8.1 trillion and it will be 25.4% of GDP. In 20 years (2029) we will be spending $9.3 trillion which is 26.7% of GDP

In other words, health costs will own us if left unchecked. And it would be a sad irony if the agency charged with rigorously protecting the federal budget inadvertently made it impossible to address the single biggest threat to our budgetary health.

By Ezra Klein  |  May 21, 2009; 6:00 PM ET
Categories:  Health Economics , Health Reform  
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Comments

20 years out average income should be 140% of today's by normal expectations. 26.7% of 140% equals 37%. 140% minus 37% leaves 103% in my eighth grade math to spend on everything else. Compares favorably with 85% today (100% minus 15% for health costs) to spend on everything else.

Almost 20% more income to spend on everything else -- along with 20 more years progress in medical care -- and who knows what amazing everything else (adjusted for inflation -- tech advance not usually reflected in inflation numbers -- no realistic way to measure it): sounds like a great time to be alive and amazingly healthy to me.

Want something to worry about? Imagine if 25% of the American workforce (not the typical OECD economy's workforce -- not them) were earning less than the minimum wage (with the income curve pretty flat most of the way to the top)...
...of 1968! That was the state of affairs as of a couple of years ago when the fed minimum was $5.50/hr (in today's money) compared to LBJ's $10/hr.

This impacts medical care too because the people who have all the money the rest of us did not get (CBO reports top one percentile households averaged $1.2 million in income in 2006*) don't have any more hearts and livers to fix even if they have the money to throw at fixing them -- and the rest of us may not be able to support the taxes to pay for adequate national insurance because we make less all the time.

The warped out of shape American labor market -- that is what to worry about.

* http://www.cbpp.org/cms/index.cfm?fa=view&id=2789

Posted by: DenisDrew | May 21, 2009 6:35 PM | Report abuse


The reality is we have a unique opportunity to fix this mess, or at least start to fix it. If we let it go by, I am pretty confident health care will not ever get to 26.7% of GDP.....for years we have all talked about a "tipping point" and while we have not found it yet, I think it safe to say that costs at that level would become truly unbearable. The response would be a knee-jerk reaction to the crisis as opposed to one that is more measured and hopefully more thought out.

Posted by: scott1959 | May 21, 2009 7:44 PM | Report abuse

For a more rigorous look at what happens if we do nothing, my colleagues at The Urban Institute just released a paper on exactly that topic. It's not pretty. See it at http://www.urban.org/url.cfm?ID=411887.

Posted by: twaidmann | May 21, 2009 11:40 PM | Report abuse

15% of today's GDP goes to health care.

15% of overall income has shifted from the bottom 90 percentile of earners to the top 1 percentile of earners since 1973.

Anybody see a possible connection between the pressure of health expenses and the uniquely distorted (mostly because uniquely ignored) American labor market?

Posted by: DenisDrew | May 22, 2009 9:29 AM | Report abuse

Who is Denis Drew? He is stealing my ideas, but expressing them better than I. Also in his first comment he reproduces a computation of Uwe Reinhardt that shows that even without change, thing will not be so bad in the future.

Right on, Dennis


Let me say that the ideas for reform being floated as so bad, I would rather see nothing done now and wit until we get an efficient government run system like the rest of the world.

Here's my two cents:

Myth - "It will be very expensive to get good health to everyone."

Fact - Actually there's a way we can have better universal health care at no more than we are now paying (see 5. below). Here are the facts (cf. www.pnhp.org):

1. We waste $100 - $200 Billion a year on the high overhead of insurance companies.
2. We waste 200 - $400 Billion a year on doctors filling out forms for insurance companies.
3. I don't know the compliance cost of patients fighting with insurance companies, but it must also be in the 100's of Billions.
4. We pay the highest drug cost in the world to drug companies that spend twice as much on profit and three times as much on "marketing" as they spend on research. This is about another $100 Billion each year.
5. Because of the above, we could give Super Medicare (few limitations, no co-pays, no deductibles and complete drug, dental & mental coverage) to everyone at no more cost per person than we are now paying.

Other countries with single payer systems get better health care as measured by all the basic public health statistics and they do it at less than half the cost per person. If we build on our rotten system, we will get a health care system with rotten foundation

Len Charlap
Princeton, NJ

Posted by: lensch | May 22, 2009 11:03 AM | Report abuse

Business Community must get behind single-payer health insurance

"There are two expenses that businesses should not incur, and for exactly the same reason. Taxes and health care (and related administrative costs) are simply passed on to consumers in the price of the product. We taxpayers pay 50% more for the mere pleasure of sticking it to corporations.

Both should be a zero burden on corporations because they make them uncompetitive with those in other countries that are not faced with them. As a result US companies must cut jobs or outsource manufacturing and services. This is absolutely stupid."

See the rest of this article and add your comments at http://tinyurl.com/rymbte

Posted by: jlohman | May 22, 2009 2:00 PM | Report abuse


Re: lensch....I largely agree with you and the five points you make. I do think that however the CBO scores it, in the end if we went single payer we would wake up one day and be surprised it didn't cost as much as we feared.

However, that said, I do disagree with doing nothing now. I think we must do something. Even the proposals floated so far, as imperfect as they may be, would help in covering the uninsured, help the underinsured, eliminate the job lock because ones health care is tied to employment, etc. I think those are important.

Posted by: scott1959 | May 22, 2009 3:57 PM | Report abuse

Scott1959 - The problem is that the opportunity for reform only comes around every so often. If we mess up this opportunity, we will have to wait a long time to get an efficient system. Anything that retains private insurance leaves the $500 Billion each year lying on the table and thus will cost a fortune.

Look suppose I'm right and we can use the $500 Billion to give Super Medicare to everyone and spend the same we are now spending. We still will be paying twice as much as everybody else (think France) and so there could be as much as $1.2 TRILLION (half of what we now pay) left for further savings. Meanwhile everybody gets decent health care.

BTW I not sure what your CBO remark means, but this ain't rocket science. For example, you can go to United HealthCare's, say, financial statement and compare intake (premiums) with outflow (benefits). The difference is overhead. There are published figures for Medicare and other countries so you can compute what I talk about in1.

Posted by: lensch | May 22, 2009 9:25 PM | Report abuse

If we were having a discussion on how we could eradicate prostitution, would we invite the brothel-keepers to that meeting?
Then why on earth do we have HMOs participate in the discussion on healthcare reform? They (and the insurance companies) ARE the problem. They can never, never be part of the solution.

Posted by: alzach | May 24, 2009 10:37 AM | Report abuse

I am sick of hearing this nonsense about savings that will come from expanding health care. Here are simple ideas to save money.

1. Cut off Medicare for the rich- they get catastrophic coverage only.
2. Introduce more high deductible plans.
3. Break the cartel preventing us from increasing medical school size, increase the supply of doctors.
4. Break the cartel that is preventing liability limits and causing malpractice insurance costs to skyrocket.

Posted by: staticvars | May 24, 2009 8:37 PM | Report abuse

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