Friday, August 14, 2009

Pres. Obama Details His Shaky Plans For How to Pay For Health Care Reform

I watched the President's town hall meeting in Montana today. In his opening remarks he referenced the imminent insolvency of Medicare (as I mentioned in my prior post), saying that Medicare "will be in the red in less than ten years."

In response to a question from the audience he also explained that he plans to pay for his proposed health care reforms as follows:

1. He indicated that the total cost over 10 years would be $800 billion to $900 billion. That estimate is interesting because it is $100 billion to $200 billion less than the widely publicized $1 trillion figure that has been estimated by the non-partisan CBO. So he apparently plans to pay for part of the cost by simply hoping the plan actually costs 20% less than current best estimates. And that's in a historical context where similar government programs have proven to be much more costly than their original estimates. The most notable recent example being the prescription drug bill passed during the recent Bush administration, the actual cost of which has been more than double the original estimates presented when the bill was passed in 2003. A similar result in health care reform now would see the projected costs balloon to $2 trillion, or even $2.5 trillion over 10 years, a crippling sum given our current budget deficits and accumulated national debt.

2. The President then asserted that two thirds of this cost (or about $600 billion) would be paid for via cost savings derived from new "efficiencies" and by "eliminating waste." Good old "eliminating government waste." Has that old chestnut ever worked in reality? (Despite being promised by seemingly every elected official in the history of the country.) The next time will be the first.

3. As a result of the $600 billion to be saved by eliminating waste and inefficiency, and by consciously underestimating the projected 10-year cost by $100-$200 billion, the President was able to then make the math work so as to assert that the remaining $200-$300 billion could be funded by higher income taxes levied only on those Americans earning over $250,000 a year. But if the President's rosy assumptions prove over-optimistic (as seems certain), the only choice will be to tax the middle class much harder to make up the difference, as it will be politically impossible to revoke these benefits, once granted. That's why people are worried about the cost, despite the President's assertions that he will not raise taxes on the middle class.

4. Lastly, he asserted that any government-sponsored health insurance plan would have to be self-funding (so that it would not cost the government anything and so that it would not unfairly compete with private health insurance). But Medicare was designed to be self-funding as well. And as the President noted in his opening remarks today, it seems likely to be insolvent before the end of the Presiden't second term in January 2017.

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