This weekend, Barack Obama offered once again an argument he first made in the speech to Congress last Wednesday night, which is that he could realize four trillion dollars in savings “over the long term” from the health care industry by merely reducing the cost growth by one-tenth of one percent each year. Bear in mind that the entire health-care industry generates $2.3 trillion each year, about a third of it from government funding. Such a claim stretches the notion of “long term” into something Biblical:
And as I have said over and over again, I will not sign a plan that adds one dime to our deficits – period. This plan will be paid for. The middle-class will realize greater security, not higher taxes. And if we can successfully slow the growth of health care costs by just one-tenth of one percent each year, it will actually reduce the deficit by $4 trillion over the long term.
On Saturday, when I first featured this, I showed this spreadsheet from my favorite economist, King Banaian, which showed that the long term would have to be defined as 3,634 years:
Since government only accounts for a third of the industry at the moment, that means that only $11 billion over 10 years would go to deficit reduction, assuming that government health-care spending didn’t increase with ObamaCare. At that rate, it would take longer to realize $4 trillion in deficit savings than all of the years since Moses parted the Red Sea until today.
However, a reader pointed out that King hadn’t accounted for interest savings in his projections. The reader said that by adding up all of those savings, Obama gets to his $4 trillion much more quickly than Methuselah Time. King took the challenge and recalculated with a very, very generous assumption of 7% interest, and voila! It does shorten the time frame:
This does change things quite a bit … but nowhere close to even one trillion dollars, let alone $4 trillion. In 40 years, roughly the amount of time Moses led the Israelites around the desert, slowing growth 0.1% each year only nets $827 billion across the entire industry, with only a third of that savings by government that might get applied to the deficit. One third comes to about $292 billion in aggregate savings over 40 years, leaving Obama around $3,708,000,000,000 short of his promise.
So how long would it take to get to $4 trillion if we count interest and compound it? The good news is that it won’t take 3,634 years. It would take until 2085, which is still a very, very long time to wait to see whether Obama’s got this right. And it’s only applicable if the ObamaCare bill (a) actually reduces costs by 0.1% each year, and (b) if Obama doesn’t spend the money on something else.
Oh, and the amount Obama himself will add to the deficit over the next 10 years? Five trillion dollars.
For an administration that claims to value science, they seem to take a faith-based approach to mathematics.
Update: One commenter warns that Obama will keep his promise by adding a whole lot of dimes to the deficit. It reminded me of this classic cinema moment (Warning: salty language ahead):
If Obama gets his way, we’re gonna have to go back and get a &^%$load of dimes, I tell you.
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Illustrations by Chris Muir of Day by Day. Be sure to read the adventures of Sam, Zed, Damon, and Jan every day!