Healthcare: A ‘Down Payment’ On Dysfunction?

March 2, 2009

A ‘Down Payment’ On Dysfunction?


Health Care: President Obama has unveiled an ambitious plan that he believes will bring down medical costs and provide care for all. What it will do is raise taxes. What it won’t do is achieve his goal of “universality.”

Read More: Health Care

Administration budget plans include a $634 billion “down payment toward a more efficient health care system” and assume that spending large sums will somehow save money.

“The single most important thing that we could do, and the reason that I am committed to getting this budget done this year, is reform the health system so that we bend the curve on health care costs and thereby put the nation on a sounder long-term fiscal trajectory,” White House budget director Peter Orszag said when the Obama team announced its spending package.

Washington does not have the cash to pour $634 billion into health care over the next decade. But the administration believes it can generate roughly half — $318 billion — simply by restricting the value of itemized tax deductions for families earning more than $250,000 and individuals making more than $200,000.

The White House is being overly optimistic. Actual entitlement spending has always exceeded projections, and there’s no reason to believe that it won’t in this case. Making health care “free” to more people will only increase demand. Higher costs will follow.

Ignored by the forces that want to impose a national system on the country, and relevant to the conversation, is government’s role in the exploding cost of health care.

Decades of encroachments — Medicare, Medicaid, the State Children’s Health Insurance Program, etc. — have resulted in the government owning 47% of the health care system. With that much of the market, Washington cannot deny its role in driving up costs.

Medicare lost control of its purse from the start and has never recovered. Between 1966, its first year of operation, and 1980, costs doubled every four years. In all but a few rare instances, Medicare’s annual costs have increased faster than private insurance costs. And the trouble is only just beginning.

The hospital insurance portion of Medicare is now paying out more in benefits than it receives in tax revenues. By next year, outlays for all parts of the program will exceed income. The Hospital Insurance Trust Fund will be exhausted by 2019.

If nothing changes, Medicaid eventually will have $36 trillion in obligations that it won’t be able to pay under the current arrangement. The funding gap in out years gets so big, Congress would have had to deposit $80 trillion in an interest-bearing account last year to meet Medicare’s eventual obligations.

The $700 billion Congress spent to bail out the financial institutions wouldn’t cover 1% of the amount needed to bail out Medicare, according to Cato Institute calculations.

It’s hard to fathom how anyone would suggest that a government that has run a program like Medicare should increase its role in health care. Democrats like to tax, but Medicare’s mess shows they cannot tax enough to pay for their grandiose medical care plans.

Forget the savings promised through heavy investment in health care information technology and preventive care. As we noted here last week, the administration’s claims of saving $77 billion a year through IT efficiencies is contradicted by the Commonwealth Fund that puts the savings closer to $30 billion.

And the New England Journal of Medicine said, “Sweeping statements about the cost-saving potential of prevention . . . are overreaching. . . . Preventing illness can in some cases save money, but in other cases can add to health care costs.”

As for savings from cost cuts in Medicare, Medicaid and other programs to fund the other half of the $634 billion “reserve fund,” refer to the Medicare facts above. The program has defied cuts for more than four decades and will prove to be immune to this administration’s efforts to pare spending.

Forget, as well, any assurances this plan will cover the 47 million Americans who supposedly don’t have medical care insurance. Universal coverage was guaranteed in Massachusetts when a program started in April 2006, but nearly three years later 167,000 citizens of the commonwealth remain uninsured even though the law requires them to buy coverage.

The New York Times reported in 2007 that Massachusetts officials admitted “that their universal coverage plan is not likely to be universal anytime soon.”

Washington needs to step back and take a breath before jumping into the next phase of nationalizing the country’s health care system. Taxpayers don’t need more government they can’t afford.


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