Why the Healthcare Rerform Bill Will Cost More than Predicted
The Senate Finance committee just approved a healthcare reform bill that is projected by the Congressional Budge Office (CBO) to cost $829 billion. They are even predicting that it will reduce the deficity by $81 billion.
Don’t believe it.
Since the actual bill has not been written yet, the CBO is estimating the cost based only on conceptual language. The CBO has acknowledged that the actual legislative language could result in significant changes in its estimates. Unfortunately for those of us who believe in honesty and transparency, the Democratic congressional leaders killed a requirement that the actual language of the bill be posted online at least 72 hours before Congress votes on it.
The CBO has a history of failing to accurately predict the cost of new entitlement programs. Part of that is because budget rules prevent them from including estimates of how costs may raise because of political pressure. Part is because they don’t seem to fully take into account the adjustments individuals will make in response to new legislation.
The government approved plans will be richer plans than the average person has today, with lower deductibles and more services covered. This will result in people naturally using more coverage, causing total healthcare costs to go up, not down.
With universal coverage, there will be even less incentive for businesses (pharmacies, medical clinics, etc.) to compete on price. In fact, there is very little incentive for marketing competition in the Baucus bill.
Low income people will be subsidized so they afford coverage, but this subsidy will disappear as income rises, raising their marginal tax rates to as much as 70%. Will that really hold, or will political pressure cause those subsidies to be expanded?
Higher income people will be asked to pay much higher taxes. They will naturally take actions to reduce their taxable income.
Employers will not be allowed to participate in tax-subsidized exchanges, which could possibly offer lower rates. There will be political pressure to let them participate, further increasing costs.
Finally, as employed people are forced to buy these expensive plans, the cost will come directly from their pay. This will be an additional burden on our economy that certainly won’t help tax revenue or economic growth.