The Wrong Way Cost Curve, Continued

We have yet another study that disputes the Obama administration's claims that the various congressional health proposals will somehow muffle the relentless rise in medical spending. In the past week, both Peter Orszag, head of the Office of Management and Budget, and Christina Romer, head of the Council of Economic Advisers, have repeated earlier assertions that "health-care reform" amounts to "deficit reform" because it will reduce the health-spending spirals that contribute to bulging budget deficits. So far, their arguments aren't resonating with the economic models.

The latest study, done by the health-consulting firm Lewin Group (which is part of a company owned by United Health Group), focuses on the proposal passed by the Senate Finance Committee (S 1796, "America's Healthy Future Act of 2009"). The study estimates that it would increase national health spending in the program's first decade (2010 to 2019) by $114 billion. Without the proposal, health spending is projected to increase from 17 percent of gross domestic product (GDP) in 2010 to 25.2 percent by 2030; with the Senate proposal, the increase in 2029 would be slightly greater, about 0.3 percent of GDP. That's not a huge gain, but it's no decline. The study was commissioned by the Peter G. Peterson Foundation, a research-and-advocacy group that focuses on the nation's long-term budget problems.

Lewin had previously done a study of legislation passed by the House Energy and Commerce Committee with even larger increases in national health spending, totaling $525 billion from 2010 to 2019. As I wrote last week, a study by the Chief Actuary of the Centers for Medicare and Medicaid Services (CMS), a government agency, found that the bill passed by the House Ways and Means Committee would raise health spending by $750 billion over its first decade. Although these estimates don't apply directly to the health bill unveiled on Thursday by House Speaker Nancy Pelosi, that proposal would almost certainly show a spending increase because it generally melds the Ways and Means Committee and Energy and Commerce bills.

The assumptions and methodologies used by the Lewin Group and CMS studies differ, but the main reason they predict higher health spending is similar: people with insurance use more health services, and the resulting increases will more than nullify any cost-saving provisions in the bills. All the studies agree that all the health-care plans would substantially reduce the number of uninsured. For example, the Senate bill would insure about 24 million of the 49 million assumed to be uninsured in 2011, the new Lewin study estimates.

OMB director Orszag, in his blog, has argued that an excise tax on high-value insurance plans would cause companies to scale back those expensive plans, thereby restraining health costs. In a press briefing, John Sheils of Lewin, the study's main author, agreed but said that the savings wouldn't fully offset the higher spending by the previously uninsured. In a speech to the Center for American Progress on Oct. 26, CEA chairman Romer also cited the excise tax as paring health spending.