We Can’t Afford an $856 Billion Health Reform

I debated with myself whether I should even post this blog, because the statement I made in the title seems so obvious.  Yet that’s what Sen. Max Baucus has proposed, and it’s under serious consideration.

President Obama has forecast annual budget deficits in excess of a trillion dollars as far out as forcasts are being made.  Regardless of whether Sen. Baucus’s plan would be beneficial, we just can’t afford it.

The $856 billion cost is the projected cost over ten years, so would amount to about $85 billion a year, if the projection is accurate.  “Cash for Clunkers” was a relatively simple program legislated to cost $1 billion, and ended up costing $3 billion.  Everything the government does costs more than they project, so I’m not confident (to say the least) that if passed the cost could actually be contained to this amount.  Even if it did, we still can’t afford it.

Sen. Baucus’s plan would be financed by $349 billion  in new taxes and fees, with the rest coming from Medicare and Medicaid savings.  Taking those numbers, that’s another $35 billion in new taxes per year, on top of the tax increases the Obama administration has already factored into its budget.  With about 300 million Americans, that comes out to $115 a year per person, or $460 a year for a family of four.  That’s not an insignificant tax increase.

As for the savings in Medicare and Medicaid, I’m skeptical that any saving will actually materialize, but if it does, it will have to come from eliminating some of the care those recipients are now receiving.  That’s just the rationing that has scared people, and scared seniors in particular.  More likely, the savings won’t materialize and the excess will just be added to our already unsustainable deficit.

This plan is just wishful thinking, and I’m not even considering whether it would help the delivery of health care.  I’m saying it’s wishful thinking purely on the fiscal side.  We can’t pay for it, and the result will have to be some combination of rationing health care, reducing federal expenditures in other areas, and tax increases beyond those proposed by Sen. Baucus.

The results look bad without even considering how his plan proposes to alter the delivery and financing of health care.  And just looking at the fiscal side of things, the plan will reduce the actual delivery of health care, not because that’s what Sen. Baucus proposes but because when it comes to financing his plan it’s too expensive to implement otherwise.  This plan means higher taxes and a reduction in the delivery of health care to patients.

That is my assessment of the cost.  Now, consider the benefits of this plan.  An overwhelming majority of Americans are satisfied with the health care they currently receive.  A persistent 15 percent or so of the population remains uninsured, but the uninsured tend to be younger and healthier than the average American, and they tend to remain uninsured for short durations.  Most of the uninsured this year will be insured next year, and even the uninsured get critical care at emergency rooms if they need it.

Sen. Baucus is proposing a health reform measure we can’t afford to replace a system that satisfies most people.  Wouldn’t most voters, when confronted with these facts, be opposed to the reform?

Most of the reform Sen. Baucus proposes would not take effect until 2013, after the next presidential election.  If the reform is such a good idea, why wait?  I’ve already answered that question.  The reform isn’t a good idea, and once people realize that it will impose substantial costs on almost everybody while reducing their access to health care, they will mobilize against it.  But by then it will be too late.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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