Is a $900 Billion Cap on Healthcare Reform Realistic?

The Congressional Budget Office pegs the cost of two House health reform bills at $859 billion and $905 billion over 10 years-both remarkably close to the $900 billion limit that President Obama called for. The CBO previously estimated that the Senate Finance Committee bill approved last week would cost $829 billion over the next decade. All three bills, however, would leave millions of people uninsured, and many millions more underinsured.

The actuarial benefit of the insurance provided in these bills-in other words, the percentage of medical costs it would cover-dips as low as 65 percent in the Senate Finance measure. That could be a crushing burden on the less affluent. Few details have been revealed about the standard packages that people would be required to buy, but one of them would be a bare-bones insurance plan aimed at “young invincibles.” And government subsidies might be phased out at an income as low as three times the federal poverty level, or $66,000 for a family of four.

In light of these facts, the President’s $900 billion ceiling looks more like a political statement than an acknowledgement of what it would cost to provide good coverage even to those who would be covered. Moreover, it isn’t clear that the cost projections will actually keep pace with spending growth.

One indication of that is a Health Affairs study by Jack Hadley and John Holahan. The study showed that if everyone had had insurance coverage in 2008, health spending would have been $122.6 billion higher than it was. Of course, that figure is not directly related to how much the government would have to spend to reach universal coverage; but it’s notable because in 2001, according to an earlier estimate by the same experts,  universal coverage would have cost up to $68.7 billion more than was already spent on the uninsured. In other words, the annual cost nearly doubled in seven years!

The CBO factored medical inflation into its estimates. But it is likely that health costs will grow faster than anybody anticipates today. If so, are we going to dilute the standard benefits people are required to buy and lower the subsidies that the government is supposed to provide?

One way to prevent this thinning of coverage is to take a different approach to financing universal coverage. Let’s suppose, for a minute, that we jettison the $900 billion cap and spend, say, $1.2 trillion to provide adequate government subsidies to all who need them, with a stiff penalty for those who can afford insurance and don’t buy it. Much of the additional money could come from imposing a windfall tax on the health insurers (along with safeguards to prevent them from passing it on to consumers). Health-care providers-including nonprofits–might be similarly taxed commensurate with the extra business they gained. And if spending rose more than expected, so would tax receipts earmarked for healthcare.

Nobody has run this idea through the cost estimate grinder. But if insurers and providers paid their fair share of that $122 billion a year and rising, and we also began to strip the waste out of the healthcare delivery system, we could easily afford good, comprehensive coverage for all.