CBO missed ObamaCare cost by $1 trillion?

posted at 10:45 am on August 8, 2009 by Ed Morrissey

The Congressional Budget Office has done a good job of sticking to its independent analysis, even in the face of unprecedented attempts to intimidate director Douglas Elmendorf into backing away from his positions on the deficit damage ObamaCare will do.  However, Dr. Stephen Parente of Minnesota’s Carlson School of Management says that the CBO used outdated models to determine short- and long-term costs of Barack Obama’s health care reform package.  Newer and more applicable models that the CBO declined to use show that the actual cost will be more than double the CBO estimates (via Newsbeat1):

The CBO is actually being kind to the would-be reformers. Its analysis likely understates—by at least $1 trillion—the true costs of expanding health coverage as current Democratic legislation contemplates. Over the last few months, my colleagues and I at the consulting firm Health Systems Innovations have provided cost estimates of health-care reform to both Republican and Democratic members of Congress, and we’ve posted these estimates on our website as well. We believe that the Democratic bills currently under consideration in the House and Senate would cost $2.1 trillion and $2.4 trillion, respectively—much higher than CBO’s figures. …

Why the difference in these estimates? We believe that we have better data on this issue than the CBO, which uses simulation models of health-insurance plans based on much older health-plan data—typically from 2001 or even 2000. Our estimates are grounded in 2006 commercial-insurance data to which the CBO doesn’t have access (the data are not publicly available and the CBO didn’t make provisions to purchase them). These data reflect the advent of much cheaper, high-deductible health plans and limited-provider network plans. If the government modeled its public option on these inexpensive plans, the result would be cheap enough to lure far more people away from private health insurance than the CBO estimates.

Our model has a good track record. The last time government introduced a major health-insurance innovation was 2004, which saw the introduction of Health Savings Accounts. We used the same model to predict that 3 million people would adopt these HSAs by the beginning of 2006. Our estimate, which we published in the peer-reviewed journal Health Affairs, was spot-on, predicting the market response more accurately than most other models, which produced adoption-rate estimates at least one-third lower.

The higher rate of adoption will mean higher payouts from the government as people dump private insurance, especially employers who want to rid themselves of the direct costs of providing health insurance.  That places a much higher burden on the government, which amplifies the effect on the deficit and the need for taxation.  After all, the tax income in the CBO chart below isn’t indexed to enrollment, and the revenue remains fairly constant regardless of how many people wind up in the plan:

Perhaps someone can suggest to Elmendorf that the CBO should pay to get the data and check its models once again.


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