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In a ceremony closed to the public, House Speaker Nancy Pelosi unveiled to much fanfare her version of health care reform that includes a public option. Weighing in at an astounding 1900 pages, it has an estimated (emphasis on estimated) net cost of $894 billion, making each word worth roughly $2.24 million. I say net cost because the CBO said the plan would cost $1.055 trillion over 10 years but estimated revenue on penalties on employers and individuals would bring in $161 billion. Additional revenue comes in the form of other tax increases, some of which have been highlighted by Americans for Tax Reform.
The rests of the costs are offset by cuts to programs like Medicare Advantage, but the biggest shell game in the cost comes in the fact that the estimate doesn’t cover the $245 billion needed to keep Medicare reimbursement levels from decreasing. This is supposedly covered in a separate bill to be introduced in the House (a similar bill was just defeated in the Senate), but it’s an extremely dishonest way to decrease the representation of costs for the House plan.
House Democrats can claim a compromise in backing off their plan to tie doctor reimbursements to Medicare under the “consumer option” (this is the poll-tested term of the week for the plan now, apparently). However, it’s done by shifting costs to states by increasing Medicaid eligibility from 133% of the poverty line to 150%. In addition, some of the cost structures may be skewed based on the fact that benefits aren’t paid until 2013 letting the program run surpluses for the first five years before running deficits the last five. That doesn’t seem like a very favorable trajectory if the goal is saving money.
With such a massive bill, there should be no rush to quickly pass this legislation, especially since benefits aren’t being doled out for years to come. The CBO estimate may be helpful to some now, but the actual scoring of the bill will be interesting, particularly in assessing the program’s cost decades down the road. The size and scope of the public option remains a gigantic sticking point, especially for some moderate Democrats, as well as abortion funding and coverage for illegals.
But three big problems still remain:
- The individual mandate. Despite Nancy Pelosi’s dismissal of a question regarding these concerns, forcing Americans to buy health insurance may be unconstitutional.
- A penalty structure that may make it advantageous for some businesses to drop coverage for their employees. If a small business has a payroll of $500,000 and yearly health costs of $51,000 for 14 employees, they can merely pay an excise tax of 2% equaling $10,000, saving $41,000 a year and forcing their employees to go to the government option.
- Making insurers accept anyone at anytime which increases the likelihood that people will only buy insurance when they get sick. If the yearly penalty is something like $500 a year but the cost of a policy is $1000 a year, then it would be advantageous for an individual to merely pay the penalty until they require coverage, which they will be required to receive. This drives up costs to private insurers and reduces the risk pool, making those with coverage pay more in premiums to cover those who wait to buy in until they need it.
There are many questions that need to be addressed, and there’s still a long way to go in this debate. With all these uncertainties and areas of concern, I remain strongly unconvinced that what Congress is churning out will favorably impact the cost and quality of American health care.