Faulty Math in CBO Senate Healthcare Bill Analysis

Well, the CBO definitely got one thing right in its financial analysis of the Senate Finance Committee’s health bill. In commenting on Kent Conrad’s nonprofit co-op idea, it wrote that they "seem unlikely to establish a significant medical presence in many areas of the country." I already shared my opinion on co-ops as destined-to-fail recycling attempts.

Other than that, though, here is their 10 year breakdown of the bill:

• Cost: $829 billion
• Benefit: $81 billion in reduced federal deficits
• Coverage: Increase from 83% to 94% of Americans
• Uninsured Reduction: 29 million
• Missing: $200 billion in Medicare physician payment increases
• Risk: 15% low-income subsidy cuts to abide by Obama’s budget-neutral failsafe mechanism

The SFC bill’s lower cost sent House Democrats scrambling to reduce HR 3200’s cost under the $900 billion limit set by the president, even though their plan would cover 8 million more people than the SFC’s. Part of their strategy may be to move 7 million low-income individuals onto Medicaid instead of providing subsidies for private insurance.

Which brings me to my point. They realized something most of us haven’t. Much of the budgeting exercise has been based on faulty math because the largest cost factor is an unknown – private insurance costs. Higher education provides a useful, though painfully similar, example.

Let’s say you have kids going off to college. You have promised, in writing, to subsidize each of them above a certain dollar amount that they should have saved up, and they in turn have agreed that college is mandatory. The goal, of course, is for them to get a high quality education for a reasonable cost. And you are acutely aware that any money spent on your kids’ education is at the expense of your retirement fund.

Which option would you choose:

a) Turn over your wallet with few strings attached and leave all decision-making power to your kid and the colleges, without limiting total college-of-choice costs; or

b) Allow your kid a wide range of possible college options while retaining final decision-making authority over college costs you will pay?

Whenever the universal healthcare tab has been deemed too high, the favorite “remedies” until now seem to revolve around dumping the public option and lowering subsidies, while keeping coverage mandates and consumer protections.

Here is the problem with that:

The top 10 for-profit insurers made $12.9 billion in profits in 2007. That’s despite spending 454% more than government-run Medicare on administrative bureaucracy. Now, add millions of new members to their rolls, with no premium caps and guaranteed government premium subsidies. It will be a profit “bonanza”, according to Robert Laszewsi, a 20 year insurance executive. We don’t need our hands tied behind our backs while private insurers steal our wallets.

“Government-run” healthcare has been proven world-wide to reduce costs through administrative efficiencies and payment negotiating clout. For example, we could save $51 billion annually in administrative costs by switching to a mixed private/public healthcare system like Switzerland’s. That’s half the annual cost of healthcare reform! Where’s the savings? Their private insurance is all truly non-profit (there’s little “surplus” motive) and the public part is a government-controlled prescription pricing program.

We don’t have the equivalent of Swiss non-profits. However, we do have a public option in the HELP bill and HR 3200 that can provide competition to wring some of that $12.9 billion waste from our healthcare. I’m not sure the CBO can do that kind of math.

Editor's Note: Originally I was going to introduce myself to everyone today. Given the news cycle, however, I thought it better to update you on the CBO release. The Meet the Editor post will post Friday, I promise.

Photo Jeremy Castillo // CC BY 2.0