The CBO may have underestimated the cost of health reform by $1 trillion

Dr. Stephen Parente of Minnesota’s Carlson School of Management says that the CBO used outdated models to determine short- and long-term costs of the health care reform bills before Congress. The Democratic bills currently under consideration in the House and Senate would cost $2.1 trillion and $2.4 trillion, respectively.

Dr. Stephen Parente of Minnesota’s Carlson School of Management says that the CBO used outdated models to determine short- and long-term costs of the Democrats health care reform plans. By his analysis, the bills currently under consideration in the House and Senate would cost $2.1 trillion and $2.4 trillion, respectively.

The biggest player in the health-care debate right now isn’t Nancy Pelosi, Harry Reid, or even President Obama. It’s the Congressional Budget Office, which is responsible for estimating the costs of proposed legislation. After the director of the CBO testified on July 16 that none of the health-reform bills in the House or Senate would reduce the rate of increase in federal spending on health care, congressional efforts fell into disarray. Many policymakers began searching for a way to get costs below the CBO’s frightening estimate of $1.1 trillion over ten years. Others attacked the CBO, calling its estimates irresponsible.

The CBO is actually being kind to the would-be reformers. Its analysis likely understates—by at least $1 trillion—the true costs of expanding health coverage as current Democratic legislation contemplates. Over the last few months, my colleagues and I at the consulting firm Health Systems Innovations have provided cost estimates of health-care reform to both Republican and Democratic members of Congress, and we’ve posted these estimates on our website as well. We believe that the Democratic bills currently under consideration in the House and Senate would cost $2.1 trillion and $2.4 trillion, respectively—much higher than CBO’s figures.

The discrepancies between our estimates and CBO’s stem from our different assumptions about a key issue. The Democratic plans envision a government-run insurance program, modeled after Medicare, that will compete with private insurers. How many people would opt for coverage under this public insurance? We believe that both large and small employers would have powerful incentives to shift their employees out of private coverage and into the public plan. Like the Urban Institute, we estimate that roughly 40 million people would make the shift. CBO seems to assume, however, that large employers would use the public plan only sparingly and that only 11 million people would move from private to public insurance—which would, of course, result in lower costs.

How good are Congressional Democrats at estimating health care costs? Take a look at the original projections of the cost of Medicare.

The cost of Medicare is a good place to begin. At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee estimated that Medicare would cost only about $ 12 billion by 1990 (a figure that included an allowance for inflation). This was a supposedly "conservative" estimate. But in 1990 Medicare actually cost $107 billion.

If the Democrats pass ObamaCare and miss the projections as bad as they did in the 1966, America will be bankrupted.