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Health Insurance Reform Daily Mythbuster: The Cost of Reform

Health insurance reform opponents continue to spread myths about America's Affordable Health Choices Act.  Republicans, in particular, are showing a recent convert's zeal for reducing the deficit by claiming we cannot afford health insurance reform now because of the size of the federal deficit.  But the facts demonstrate that not only are Republicans the wrong ones to trust on fiscal discipline, health insurance reform is the single biggest way to improve both the long-term fiscal health of our nation and the competitiveness of American businesses in a global economy.

And as some in the news media continue to incorrectly report that the House bill “will increase the deficit by $1 trillion” - or even worse “the public option costs $1 trillion” - the facts and some perspective are needed.

First the perspective: a new report by the independent Citizens for Tax Justice found “tax legislation enacted under President George W. Bush from 2001 through 2006 will cost $2.48 trillion over the 2001-2010 period. This includes the revenue loss of $2.11 trillion that results directly from the Bush tax cuts for the wealthy as well as the $379 billion in additional interest payments on the national debt that we must make since the tax cuts were deficit-financed.”

Myth:  We cannot afford a $1 trillion health reform bill.

Fact:  Unlike the $2.48 trillion tax cut legislation enacted by President Bush and by most of the current Congressional Republicans, health insurance reform will not increase the deficit. 
On July 17, the Congressional Budget Office (CBO) confirmed that the health reform provisions of the House bill will be fully paid for.  CBO estimated that the cost of the bill's reforms was $1.042 trillion over 10 years, while the bill's cost savings and revenues totaled $1.048 trillion. Since then, amendments to the bill have trimmed the cost even more.

Furthermore, contrary to the claim that the public health insurance option “costs $1 trillion,” the public option actually has NO cost to taxpayers - with the bill requiring that the costs of operating the public option must be fully covered by premiums.

The reforms will be fully paid for through a combination of almost $500 billion in net Medicare and Medicaid reforms, cutting waste and inefficiency as recommended by the non-partisan MedPAC to strengthen the Medicare trust fund, and curbing excessive profits private insurance companies are taking which divert care from seniors --and more than $500 billion in revenue raised through a tax surcharge on the wealthiest 1.2 percent.

The cost of reform does not include funding the “Sustainable Growth Rate” fix for Medicare doctors' reimbursement rates because it is not new and not subject to pay-as-you-go rules.  For eight years, the Republican-controlled Congress did nothing to provide a funding source for these payments--so it's another budget headache the GOP left behind.

But we cannot reduce the deficit without getting health care costs under control.   As White House Budget Director Peter Orszag has stated: “The evidence is clear that the biggest threat to our fiscal future is health care costs.  If health care costs grow at the same rate over the next four decades as they did over the previous four, Medicare and Medicaid spending will go from about 5 percent of GDP to about 20 percent by 2050.  That was about the size of the entire federal government last year … The fiscal importance of health care reform is indisputable.”

The House bill contains numerous provisions that will bring down health care costs over the long term.  The reforms in the House bill - which will both contain cost growth and improve care - include:

  • Requiring the nonpartisan Institute of Medicine to submit specific recommendations to Congress on how to better have Medicare and Medicaid reimburse providers for the quality of care (rather than the quantity) - with these recommendations to be voted up or down.
  • Promoting Accountable Care Organizations that provide for hospitals and doctors working together to manage and coordinate care;
  • Creating incentives to reduce preventable hospital readmissions that reward transition planning and coordination for patients; and
  • Establishing pilot projects to test “bundling” payment methodology under which one payment would be made - rather than separate payments - to the combination of health care providers involved in a patient's care.