Health Reform: Dueling Cost Estimates Show Opposite Results, What Will CBO Show?

Friday, the Chief Actuary of the Centers for Medicare & Medicaid Services issued a report estimating that the Senate health reform bill, H.R.3590, would increase federal costs $365.8 b. FY10-FY19. Today, the President’s Council of Economic Advisers estimated that the Senate bill would reduce federal spending on Medicare and Medicaid by 0.7% annually FY16-FY19. CEA chose that period to get beyond the initial increases these programs would experience as roughly 30 m. Americans gain insurance coverage. How can the two studies comes to opposite conclusions?

The CMS study covers all federal health costs over 10 years, and the CEA study covers just Medicare and Medicaid for three years. It just goes to show that you can find the conclusion you want depending upon how you look at the data. CEA argues, with some justification, that the budget effects of the first 6 years of the Senate bill reflect expanding coverage. Cost savings don’t kick in until year 7, so it’s not fair to count the first 10 years. On the other hand, the CMS analysis correctly questions whether health providers can provide the care of those 30 m. additional insured Americans at the costs assumed. The analysts in both cases had to make that assumption. No one knows for sure how it will turn out.

Soon the Congressional Budget Office will weigh in with its estimate, also based upon that assumption. CBO’s estimate will have a lot of impact on what further changes have to be made to health reform to gain Senate passage.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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