THE COST OF HEALTH CARE REFORM--$1.5 TRILLION OR?

Putting the political cart firmly before the horse, the Senate Finance Committee heard testimony last week on how to pay for reform—before they had reliable estimates of how much it is likely to cost.

It’s not that there aren’t plenty of estimates to choose from. A recent Associated Press report offered ten-year forecasts ranging from “the president’s $634 billion…is likely to be the majority of the cost” (White House budget director Peter Orszag) to “$125 billion to $150 billion a year” (New America Foundation economist Len Nichols) to “$1.5 trillion to $1.7 trillion would be a credible estimate” (Lewin Group consultant John Sheils). Take your pick.

What’s really the number that Senate Finance members must find a way to fund? Leaving aside mythical savings like the $2 trillion sort-of promised by health care industry bigwigs, and the almost as questionable cost reductions for delivery system tweaks offered at previous Senate Finance sessions, the question becomes: how much new spending will universal coverage add?

Despite the willingness of numerous experts to offer estimates, only one detailed study has been published. Urban Institute researchers projected in 2008 that additional spending would have been $122 billion, in 2008 dollars, if universal coverage had been in place in that year. At current health care cost growth rates, this would equate to $135 billion in 2010 and a ten-year estimate of close to $1.5 trillion, both in 2010 dollars.

But could this number be too high?

Maybe. Here are some reasons:

1. The Urban Institute study projected a total of 54 million uninsured in 2008. The Census Bureau CPS estimate for 2007 was 45.7 million. The current CBO estimate for 2009 is 45 million. Using the lowest of these estimates would reduce the ten-year cost projection to $1.25 trillion.

2. The Urban Institute study assumed that the newly-insured would be split between public and private insurance in the same ratio as lower-income individuals already with coverage. If reform were based on private coverage expansion, the ten-year estimate could fall by another $250 billion, to around $1 trillion.

3. A combination of the effects of insurance exchange price competition and some taxation of employer-paid benefits could further reduce the projection, perhaps by another $100-200 billion.

Unfortunately, the Urban Institute estimate could also be too low:

1. Continuation of the recession combined with possible CPS undercounting could put the actual number of uninsured close or even above the number projected by the Urban Institute. (This would be consistent with Massachusetts’ reform experience of the actual uninsured count proving to be significantly higher than estimated by state analysts.)

2. The Urban Institute study did not include the underinsured, estimated to be as many as 16 to 25 million, who might be expected to incur additional costs if they had better coverage. (Both estimated counts are from Commonwealth Fund papers, which defined underinsured as expending more than 10 percent of income on out-of-pocket health care costs.)

3. In addition to those counted as underinsured, many others individuals might also incur additional costs with improved coverage.

It’s your choice, Senate Finance Committee!