Will it Lower the Federal Deficit?

This is one of the most heated questions when it comes to the health care debate. A lot of people were caught of guard by the Congressional Budget Office (CBO) estimates. There have been accusations on both sides about the accuracy of the estimate. I have read several articles that state that CBO estimates are historically too optimistic. On the Today Show this morning, President Obama said that they are historically pessimistic. Both of these groups are wrong, and the CBO says so, here under "How accurate are CBO budget projections?" They clearly state that their estimates are not intended to be used to predict future budgetary outcomes. The accuracy of their estimates is dependent on a lot of factors that they legally can't take into account.

The CBO estimates that this legislation will reduce the federal deficit by $124 billion over 10 years. If the deficit isn't $124 billion lower in 10 years, it doesn't mean that the CBO was wrong. The CBO makes several assumptions when they produce a cost estimate. I'm going to analyze several of them here. As you read over these, remember that a lot of very smart people put a lot of effort into these estimates. They may not be completely accurate, but they are the best that we can do.

The 10 year estimate

The CBO can only consider the effects of legislation under current law. That means that if Congress makes a change to the health care legislation in five years, the estimate is no longer valid. So the real question is, how likely is Congress to change this legislation. In the CBO's estimates for the Reconciliation Bill ( pages 13-14), they state that this is not often the case with major legislation. They give several examples related to health care, in which Congress has taken actions that have increased costs.

It also says that this legislation "put[s] into effect a number of policies that might be difficult to sustain over a long period of time." This includes significant reductions to reimbursement rates to doctors for Medicare services. If Congress reduces or eliminates these reductions next year, then the cost of this bill will change significantly.

A panel known as the Independent Payment Advisory Board (IPAB) will be formed with a responsibility to find ways of reducing the cost of health care. On page 14, the CBO states the assumption that the IPAB will be fairly effective at reducing costs. If they are less effective than expected, then the legislation will cost more. If they are more effective, it will cost less.

The 20 year estimate

The CBO estimate does not contain the $1.2 trillion dollar figure. What they do say is on pages 11-12. Many times, they mention the imprecision of estimates so far into the future. It estimates the savings to be in a "broad range" about .5% of the Gross Domestic Product (GDP) in 20 years. The $1.2 trillion dollar figure is estimated to be .5% of GDP in 20 years. The broad range means that it very well could cost $1 trillion dollars or save $2 trillion dollars. They just don't know. It is, yet again, important to note that any changes to this legislation in the next 20 years will change the cost estimates.

The Conclusion

Are the CBO estimates accurate? No. They were never intended to be so. The CBO is required to provide estimates using only current law. Invariably, things will come up. Congress will pass laws regarding health care. The CBO can't predict what actions Congress will take and those actions could have great sway on the final costs of this legislation.

Will this legislation lower the deficit? We don't know. Lots of changes may come up over the next ten years.

I only covered a few of the assumptions here, but if you want more information, read the CBO report.

Will it Raise my Premiums?

The first question that many American's ask about health care reform is "Are my premiums going to go up?" On www.whitehouse.gov, this is the first question that they answer. The answer they give is simply, no.

This is a contradiction of the estimates provided by the Congressional Budget Office (CBO). The CBO is a non-partisan federal agency that provides estimates for the long term costs of legislation. The CBO has been chosen by government leaders to be the authority on the cost of legislation. Many people question the validity of the CBO estimates for this bill. That's a topic that I'll cover in a later post. For right now, we will assume that they are accurate.

The CBO gives estimates for health insurance premiums for the year 2016. The data is available here in a table on page 5. They divide people into three groups: those who buy their own insurance, those who work for a small company and those who work for a large company. I combine small and large businesses in my discussion because the effects are similar.

I buy my own insurance

The CBO estimates that your premiums will be 10 to 13% higher in 2016 with this legislation than without it, which works out to be an additional cost of about $2000 a year for families or $300 for individuals. If you make less than $88,000 (families) or $43,000 (individuals) than you will be eligible for a subsidy. In which case, you will probably pay a lot less for insurance than you are now.

If you do not receive subsidies, then you will pay more for health insurance according to CBO estimates, 10 to 13% more in 2016.

The estimates given are for 2 years after the insurance subsidies take effect. It is doubtful that the 10 to 13% jump will happen all at once. If we average the jump over 6 years, it works out to be an increase of 2 to 3 percent each each. Note that this does not mean that your premium will be 2 to 3% higher next year. If your insurance would have raised your premiums by 5% next year without this legislation, then they may raise your premiums by 7 to 8% next year with this legislation.

I get health insurance through my job

The CBO does not expect a significant change in premiums those who have health insurance through their job. However, you may still end up paying more for health insurance.

In the CBO cost estimate for the reconciliation bill, they state that significant costs will be placed on both states and the private sector, here (page 6). It states that the annual cost will be significantly greater than $141 million, which is less specific than I would like. Several businesses have released estimates on the costs placed on them, including AT&T, who estimates the cost at $1 billion, here. Several businesses have said they will cut benefits because of the costs that are placed on them, which would place more costs on you. These costs to businesses were anticipated in the CBO reports.

As an example, lets say that your employer pays 80% of your premium and you pay 20%. If that is cut so that they pay 60% and you pay 40%, then you will be paying twice as much for your premiums each month. The total cost of your premiums may not rise, but the cost to you may.

The Conclusion

There are a lot of Americans who will end up paying less for health insurance under this legislation. However, there are many who will end up paying more. It is not right for the white house to say that no one will pay more money, when the CBO estimates do not support that claim.

Why you need another source on Health Care.

I have spent a lot of time trying to figure out the details of this health care legislation, and it's pretty hard to come by. Newspapers, TV new anchors, and politicians all have to put their own spin on it. It pretty much comes down to this, when Democrats tell you about health care reform, they'll lie to you; when Republicans tell you about health care reform, they'll lie to you; and even when President Obama tells you about health care reform, he'll lie to you.

In my search, I have not found a single source that conveys correct information in a manner that is simple to understand. After reading false information on www.whitehouse.gov about premiums, I decided something had to be done. It is not my intent to tell you whether or not health reform is right or wrong or if it's constitutional. I simply want you to know the facts.

To the best of my ability, I will provide the facts in a manner that most anyone can understand. I will provide links to my sources so that you can look them up and verify the information for yourself. I will also provide a list of sources that have been found to provide inaccurate information and should be avoided. If you have a question that you would like me to answer, please let me know and I'll do my best to find the answer for you. In the end, I want you to be able to make an informed decision about this legislation for yourself.