Sunday, March 14, 2010

ObamaCare and the Illusion of Cost Control

From the WSJ editorial page:

Above all other reasons, voters who oppose ObamaCare cite their fear over costs: They think it will cause their insurance premiums to soar and result in far higher taxes to fund a vast new entitlement. The public is right on both counts, which is why White House smokejumpers have been dispatched to put out this fire as the final votes approach.

Let's take their claims one by one, as a public service while everyone else focuses on the whip count.

• A new entitlement can "save" money. That was the main thrust of a recent Washington Post op-ed by White House aides Peter Orszag and Nancy-Ann DeParle. The plan "more than meets the president's commitments that health-insurance reform not add a dime to the deficit," they write.

It's true that the Congressional Budget Office estimates that the Senate version of ObamaCare would reduce the deficit by $118 billion over 10 years. But even that number was concocted by budget gimmicks, such as using 10 years of new taxes to fund six years of benefits, as Wisconsin Republican Paul Ryan showed at the White House health summit. Mr. Orszag says this doesn't matter because CBO says the bill will save some $1 trillion in the second decade too.

President Barack Obama and Budget Director Peter Orszag.

In fact, CBO is careful to stress that it doesn't really know "because the uncertainties involved are simply too great" over such a long time period. CBO also says that the new entitlement will grow by 8% a year, even as Medicare and Medicaid grow by similar magnitudes and overall federal spending is already at 25% of GDP. If this new entitlement actually "saves" money, it will be the first in history.

• Insurance premiums will fall. Dan Pfeiffer, Mr. Obama's communications director, took to the White House blog to claim that the plan "will make insurance more affordable by providing the largest middle class tax cut for health care." So subsidies are really tax cuts?

Insurance subsidies are transfer payments in which government takes money out of the private economy and gives it to someone else. Subsidies thus put an even larger share of health-care spending in government hands. When you subsidize something, you get more of it, which means higher demand for insurance and health-care services. Combine this with new mandates that have raised costs in every state where they have been tried, and you will get higher premiums.

Read the rest here.