Saturday, October 24, 2009

the perils and past failures of prognostications on health care costs

It is standard fare that government intervention is oversold in terms of its practical benefits and undersold in terms of its direct and indirect costs.

In the context of health care, the historical record brings that principle to vivid life.

As such, the burden should be on those who want to increase government intervention in health care-- from its massive role now-- to make a good cost/benefit case for their reform proposals.

Here are the editorialists from the WSJ with some of the numbers...

Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy....contradict[s] the claim of government as a benign cost saver.


Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing.

Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched—after adjusting for inflation....

Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion....

The lesson here is that spending on nearly all federal benefit programs grows relentlessly once they are established. This history won't stop Democrats bent on ramming their entitlement into law. But every Member who votes for it is guaranteeing larger deficits and higher taxes far into the future. Count on it.


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