I’m not asking this to be snarky, or at least not entirely. Barack Obama twice this week made an argument that he can squeeze $4 trillion in deficit reduction “over the long term” from an industry that generates a total of $2.3 trillion a year — by slowing the rate of cost inflation through his overhaul prescription. Put aside for the moment whether ObamaCare will slow the rate of growth at all, and how Obama plans to make that happen without rationing. How can he claim to get $4 trillion out of a $2.3 trillion stone, especially since the government’s portion in that is only somewhere between a third and a half?
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.
According to Pacific Research Institute, Medicare and Medicaid cost slightly over $800 billion in 2008, or just about 35% of the entire gross product of the US health-care industry. PRI also notes that government costs have risen faster than the health-care system as a whole, which calls into question whether government programs are the actual cause of the rate of growth in health-care costs. Those numbers appear to correlate with the latest figures of the Census Bureau, which puts the government coverage of the American people at around 34% of the insured population.
But the problem goes further than that. How can Obama claim that he can get $4 trillion in deficit reduction from reducing the growth rate in health-care costs? I posed this question to King Banaian, everyone’s favorite economist, who produced a spreadsheet using data from the HHS on the entire industry, outlining the entirety of cost savings to the industry as a whole (and not just the deficit) by slowing down the cost curve:
In a ten-year window, even if Obama delivered what he promised twice this week, it would save a grand total of $33 billion dollars — and that’s for the whole industry. If the government covered a third of the costs, the total deficit reduction over ten years drops to a mere $11 billion dollars over 10 years. At that rate, how long will the “long run” need to be to save $4 trillion dollars in deficit spending? It would have to be 3,634 years.
Either Obama needs a remedial math lesson, or he’s lying through his teeth.
Addendum: I reserve the right to use this as an OOTD later this week.
Update: Actually, I made a math error here. The $11 billion was over ten years, not one year, which makes the actual time 3,634 years — or about the same period from Moses to now. One reader says that I’m not considering compounding, and he puts the overall savings at $220 billion over ten years and the government savings at less than $80 billion, but that still makes the payoff to $4 trillion hundreds of years off.