WASHINGTON — We should start by putting the health-care bill into proper perspective. Opponents and supports of the bill have both profited immensely from exploiting the average person’s inability to put billions and trillions into context. So let’s begin by breaking down the numbers. The $900 billion price tag is repeated with the regularity of a rooster’s crow. That’s a shame, as the number is, somewhat impressively, misleading in both directions.
On the one hand, that $900 billion — or, more precisely, $940 billion in the final legislation — is stretched over 10 years. But people don’t think in 10-year increments. They don’t pay taxes once a decade. Put more simply, the bill will cost an average of $94 billion a year over the first 10 years.
But that’s not quite right either: The bill wouldn’t really kick in until 2014. To get a more accurate annual figure, look at a year in which the bill is fully operational. In, say, 2016, the bill’s spending will be about $160 billion (you can find these numbers on page 22 of the CBO report). According to the Center for Medicare and Medicaid Services, total health-care spending that year will be about $3.7 trillion. In other words, the bill’s spending is equivalent to about 4 percent of what we’ll spend in health care in a year, and it will be covering 30 million people.
So that’s really what we’re talking about here — a large health-care expansion that’s a slight fraction of overall spending.
Let’s go even further: It’s an expansion that most people won’t notice in 10 years. According to the Congressional Budget Office, the Senate bill will change the insurance of about 40 million people by 2019, about 30 million of whom would have been otherwise uninsured. The other 10 million will come from the employer or individual markets in search of more affordable options. About 23 million people will still be uninsured, many of them illegal immigrants. About 90 percent of Americans will be exactly where they’d be if this reform had never passed.
That accounts for the spending side of the bill. What about the cost control?
It’s the same story, but more so. Although the bill solves most of the coverage problem, it accounts for a mere fraction of the cost problem. A report by the centrist policy group Third Way estimated that the Senate legislation would save more than $800 billion over the next 15 years. That’s consistent with the CBO’s expectation that the Senate legislation and the reconciliation fixes would save more than a trillion dollars over the next 20 years.
That’s a big number. Quite a bit more than my car cost, and I thought my car cost a lot of money. But the savings amounts to no more than a rounding error given the tens of trillions of dollars we’re going to spend over that period. It’s half of 1 percent of expected GDP.
Importantly, though, it’s a rounding error in the right direction. The bill is thick with efforts to move toward cost control, if not efforts to actually impose cost controls. The excise tax, the Medicare Commission, the pilot programs to change how hospitals are paid and most of the other proposals are designed to bear fruit in the future. The excise tax — which slaps a fee on high-cost plans in order to give a competitive advantage to those that hold costs down more effectively — initially applies to very few plans but would hit more as premium costs rise. The payment reforms have to pay off as pilot programs before being considered for Medicare-wide — much less systemwide — use.
But the key when thinking about them is to recognize that the name of the game isn’t impressive-sounding cuts. As we’ve already seen, such cuts are actually not that impressive when put into context. Instead, the key is changes to the growth rate in health-care spending — even small ones.
The problem with health-care spending is not that we spent $2.3 trillion in 2008. It’s that that number has been growing by 7 percent annually. It’s the rate of increase, and not the level of spending, that we need to change.
Consider again the $2.3 trillion we spent in 2008. Given the current rate of growth, in 2028, we’ll spend $8.9 trillion on health care. Imagine, however, that we got really serious about cost control and cut $200 billion next year. If costs were to grow at the same rate, we’d still be spending $8.1 trillion in 20 years. Imagine, then, that we didn’t cut a dollar — but got cost growth down to 5 percent (which is still faster than wage or GDP growth). In that case, that $2.3 trillion would only be $6.1 trillion in 2028 — and we’d have saved money every year leading up to that. That’s actually manageable.
But changing the growth of the health-care system is a lot harder than just cutting a few dollars here or there. It requires us to change how doctors practice medicine, or how much medicine people buy or how much they need — or maybe all three. We’re doing a lot on health-care reform this year, but we’re not doing that much. And we shouldn’t fool ourselves into thinking otherwise. We’ll be back at this again, and soon.