Is $63.4 Billion a Year Enough?

Well, that’s one way to keep the drumbeat going on "The road to fiscal responsibility goes through health care" week – leak the health care number in tomorrow’s budget. Both the Washington Post and Wall Street Journal (whose contrast in headlines are laugh-out-loud funny) leak the creation of a “health care reserve fund” from a variety of sources, including ending overpayment for Medicare Advantage plans, limiting itemized deductions for those making over a quarter million, and changes to Medicare and Medicaid’s payment for pharmaceuticals and reimbursement for care. The total number will be $634 billion over 10 years.

The obvious question is – is that a lot?

It’s obviously a huge commitment for a first budget, but it depends on your expectations for the Obama reform plan. If you’re looking for HR 676, the answer is not at all. HR 676 requires revenue sources from various streams that would require $1.259 trillion a year. (Should be noted that this is still much less than Americans pay in aggregate on health care.) So not so much. If you’re looking for something along the lines of what Obama proposed during the campaign, it gets you most of the way there.

Cost estimates on the Obama health care plan have varied a lot. PriceWaterhouseCooper did an independent analysis and pegged the number at $75 billion if implemented in 2009, but that is presuming that Obama would only get 2/3 of the uninsured into the program in year one. A more regularly cited number comes from MIT health care economist Jonathan Gruber (via Paul Krugman.) He estimated $102 billion a year for Obama’s plan because it did not contain an individual mandate, and $124 billion a year for Hillary Clinton’s nearly identical plan because it did include a mandate. (The Clinton campaign also estimated her plan would be in the $120 billion ballpark).

So let’s go with the $124 billion a year figure, and not just because Jonathan Cohn, Ezra Klein and others are expecting the individual mandate – which Sen. Max Baucus and many others have embraced – to make it into the legislation with or without the president. The $634 billion would get us about halfway there this year.

That’s not a bad start – it’s certainly a huge commitment for legislation that hasn’t even been drawn up yet. As Paul Krugman (him again!) writes, “It’s beginning to look as if Obama’s really going to go through with this.” And it’s good politics – Obama clearly knows more money will be needed, but there’s no reason he should make the tough decisions now before Congress has even begun deliberating. None of the choices to get the rest of the money will make any Senator popular, so their buy-in on any decision is crucial. The aide whose anonymous quote accompanies the leak, says bluntly, “This is a reserve fund, instead of a 700-page plan. We learned the lessons of the past and want to work interactively with Congress. This is a first step.” More to the point, having demonstrated such a huge commitment, Obama doesn’t need to show all his cards at once. He’s reputed to be quite the poker player, and it shows.

So is the $634 billion enough? Nope – but there’s every reason to think the president is good for the rest.

(Photo credit: My DrEaM SCHOTZz on Flickr.)