Thursday, May 20, 2010

Douthat on the ObamaCare Cost Update

Douthat's post is very good.
Some quotes:
"First, the C.B.O. has released a new estimate of how much additional discretionary spending — on implementation costs, further subsidies for new and existing programs, etc. — health care reform is likely to generate over the first 10 years. The total comes to $115 billion above and beyond the official price tag, a sum that would almost wipe out the bill's projected deficit savings in the first decade."
"Nor is the news that Reihan Salam took note of last week, which bears on one of the potential fiscal time bombs embedded in reform — namely, the possibility that far more companies will offload their employees into the new government-run exchanges than the C.B.O.'s official estimate predicts. There's a penalty for dropping coverage, but for many employers the move would end up saving them (and their workers) a lot of money, the penalty notwithstanding. And if enough decide to take advantage, the government could find itself spending billions more in subsidies than the C.B.O.'s projections anticipate, driving health care reform deep into the red.

Now a Fortune piece offers evidence that a number of large employers are considering doing exactly that. "

"Of course that traditional employer-based architecture is a mess anyway, so there's a sense in which the more people who shift on to the exchanges the better. The problem is figuring out how to pay for it. In an ideal world, Washington would respond to a bigger-than-anticipated shift by slashing the subsidies and deregulating the exchanges, until you ended up with a system where the federal government was effectively paying for universal catastrophic coverage, rather than trying to subsidize comprehensive insurance. (The end result would be something that looked a bit like Wyden-Bennett, and a bit like Judd Gregg's  stillborn compromise.)

But in a less-than-ideal world, the Fortune piece notes, the fiscal picture will get very ugly very quickly:

What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune's reckoning, each person who's dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO.


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