When White House chief of staff Rahm Emanual lobbied Democratic Representative Jason Altmire of Pennsylvania last week to vote for the health care bill, he argued it would cut the deficit. “You ran because you care about the deficit,” he told Altmire, according to the Washington Post. “This is north of $1 trillion in deficit reduction.” Shortly after the bill passed, House Speaker Nancy Pelosi offered the exact number, claiming the bill would save “the taxpayers $1.3 trillion.”
Are these folks disingenuous or just dreaming? It has to be one or the other. Why? Because the evidence of spending projections for health care legislation passes tell a simple and unchanging story. The projections never come close to capturing the magnitude of spending that actually occurs. They prove to be wildly off the mark compared to real-life expenditures.
Take Medicare, enacted in 1965. The initial projection was it would cost $9 billion a year by 1990. The actual figure for 1990 turned out to be $67 billion. According to the Congressional Budget Office, the baseline for Medicare in 2010 is $521.3 billion, which includes $55.3 billion for the prescription drug benefit approved in 2003.
Or take one part of Medicare, the End Stage Renal Disease program (ESRD) that entitles every sufferer, regardless of age, access to dialysis. It was created in 1972 and its spending for 1974 was projected at $100 million. The real cost was $229 million. In 2007, ESRD cost $23.9 billion, nearly 6 percent of Medicare’s overall spending that year.
Or take Medicaid’s program of “disproportionate share hospital” payments. Passed on 1987, it was projected to cost less than $1 billion in 1992. Its actual cost in 1992: $17 billion. The program’s cost would still be ballooning if it hadn’t been brought under control by the Balanced Budget Act of 1997.
These faulty projections are not exceptions to the rule. They are the rule. The projection for the first year (1948) of the National Health Service in Britain was 260 pounds, far below the real cost of 359 pounds. The under-projections have continued to miss the actual demand for health services.
In Massachusetts, the universal coverage plan was predicted to cost $472 million in 2008, but the price tag turned out to be $628 million. Now Governor Deval Patrick wants to cap insurance rate increases to less than 5 percent annually, which would force insurance companies to cut payments to providers or quit the program. In 1994, Tennessee sought to control Medicaid spending with a new program called TennCare. By 2004, costs had more than tripled.
One thread that runs through all these breathtakingly erroneous projections is the lowballing of volume, which is always far greater than expected. This shouldn’t be a surprise. When offered a free good or a good that’s highly subsidized and thus cheaper than its real cost, people act in a fairly rational way. They demand more of the good than they would if they had to pay for it out of pocket. Not only that, there are invariably more people who are demanding more of that good.
The new health care program, assuming it’s implemented in 2014, is not likely to escape this phenomenon. Besides, its cost is under-estimated by the Congressional Budget Office in other ways due to assumptions imposed by the bill’s sponsors, congressional Democrats.
To make matters worse, the cost is also affected by the practice in Congress of minimizing a measure’s spending to enhance its chance of approval.
Adding all this up, the unavoidable conclusion is the newly enacted health care bill – Obamacare -- has approximately zero chance of cutting the deficit. History says it will drive up the deficit, and history doesn’t lie.