Health Care Reform Could Save $1.82 Trillion

[Joanne98]

by The Bagof Health and Politics
Sat Jun 20, 2009 at 09:09:58 AM PDT
Health care reform could eliminate spur economic growth, reduce the national debt, and expand access to medical care. On the surface, the costs of health care reform seem staggering. But when one compares the costs and benefits of health care reform, it becomes clear that health care reform could save $1.82 trillion over ten years.

The Congressional Budget Office said that Senator Chris Dodd's health bill would cost 1 trillion dollars over a ten year period. That is 100 billion--less than we gave to AIG--a year.

Senator Dodd's bill, however, does not contain a public option, and includes a long-term care social security benefit (pp. 150-165) that would be quite costly. The long-term care benefit would pay out cash of no less than $50 a day to patients who need long-term care. Nursing homes would get to keep 95% of this benefit, and patients would get to keep 5% of this benefit.

This portion of the Dodd bill would increase medical costs by providing financial incentives for nursing home physicians to pursue unneeded treatments. Senator Dodd's wife has invested at least $122,000 in nursing homes.

Let's assume that something closer to the House bill actually passes. The House bill doesn't include Dodd's long-term care benefit. It creates a public option with reimbursement rates based on the Medicare model, and enables the federal government to negotiate rates with providers and drug companies.

While not a European system, this system moves us away from the model of paying whatever big pharmaceutical, hospital and insurance companies tell us to pay. When someone is very ill and in need of health care, the costs of a procedure or a medication can't be negotiated. Heart surgery patients don't haggle with the cardiac surgeon before they're placed under anesthesia. They just want to get better, so the surgery happens and the shocking bill, which bankrupts the patient, comes later.

Patients at doctor's offices don't ask about the cost of the prescription drugs the doctor thinks will improve their health. They might ask about side-effect and usage instructions, but the desire to get better trumps concerns about the cost of the medicine. Then the patient arrives at the pharmacy, finds out they can't afford this new wonder-drug finds out they can't afford this new wonder-drug, becomes "noncompliant" in medical jargon, and is too embarrassed to call the doctor and tell her about it. Eventually, that patient will develop serious complications which cost much more than a simple prescription.

By allowing the federal government to negotiate prices ahead of time, the House bill would free up a significant amount of gross domestic product (GDP). European health care systems--and the House bill is far from a European health care system, as it would allow private insurance companies to continue to exist--spend far less of their GDP on health care than we do.

The United States spends 17 percent of its GDP on health care. If nothing changes, the United States will be spending 20 percent of its GDP on health care by 2017. European systems spend an average of 8% of GDP on health care.

The House bill is not a European system. Because private insurers and for-profit hospitals will continue to exist, the House bill will not cut health care spending by 9 percent of GDP. But as our collective bargaining power lowers prices, it is reasonable to assume that the House bill would cut health care spending by 5.5 percent of GDP.

A United States health care system that spent 11.5% of its GDP, instead of 17% of its GDP, on health care, would be a health care system that contributes to economic growth, creates manufacturing jobs in the green sector, and helps to reduce our national debt.

Current US GDP is 14.3 trillion dollars a year. Health care reform would save 5.5% of GDP per year. Assuming no growth, health care reform would save the United States economy $786 billion a year. That is money that would be put back into the economy, create jobs, and ultimately generate revenue to offset the federal budget deficit.

Even if you assumed no growth, health care reform still reduces the federal budget deficit by freeing up GDP. According to the CBO, the average federal tax rate is 20.7 percent. So the federal government would take home 20.7 percent of the $786 billion a year we would save by reducing health care costs and expanding access to health insurance. That means that the federal government would see an extra $162 billion a year headed into its coffers.

It is economic folly to make the assumption that freed up GDP won't cause economic growth. Under a more reasonable assumption of an average of 2.5% growth over 10 years, health care reform would be saving $982 billion a year by 2019. The total amount health care reform would save over a 10 year period is $8.81 trillion.

If the current average federal tax rate of 20.7 percent remains unchanged, the federal government would get to keep $1.82 trillion of the $8.81 trillion in GDP that health care reform would free up. And that would happen without anyone's taxes being increased. If we accept the CBO's contention that health care reform would cost $1 trillion over 10 years, then the national debt would be reduced by $820 billion as a result of health care reform.

In other words, the Bush tax cuts cost us $1.8 trillion over ten years and lead to an economic collapse. Health care reform would save us $1.8 trillion over ten years and lead to economic growth. Tell me again why any "fiscal conservative" would vote against health care reform?

Update: a fair criticism has been made of my analysis. This criticism says that the GDP that would be freed up is already taxed. It's a fair point. However, when you consider the $11.6 billion a year (116 billion dollars over 10 years) in aid to hospitals that provide care to the indigent, the $4.1 billion drug companies get every year as the result of loopholes Medicare Part D ($41 billion over 10 years) and the $15 billion ($150 billion over ten years) a year that would be saved by eliminating Medicare Advantage plans, it becomes clear to me that we are not currently taxing the 17% of GDP which is spent on health care. Still, this is a fair criticism of my analysis, and something that my analysis should've made clear.

This commentary originally appeared on Daily Kos

http://watchingthewatchers.org/article/19949/health-care-reform-could-save-182-trillion