MEDICARE–Underestimating the cost

Kurt Brouwer October 12th, 2009

As we have noted before, Congress has a tendency to underestimate the costs of a program it is considering.  In yet another example of this, this chart demonstrates that Medicare costs have been significantly underestimated by Congress at the time of enactment:

carpe-diem-medicare.jpg

Source: Carpe Diem

Medicare: What will it really cost?

The ironic part about the current discussions of healthcare reform costs is that proponents of the plan initially said — and some are continuing to say — that healthcare reform would save money.  Unfortunately for them, the Congressional Budget Office (CBO) pointed out that the legislation before the House of Representatives (H.R. 3200) would actually add significantly to the deficit by as much as $1 trillion over the next 10 years.

That news caused many in Congress to gulp hard, yet the CBO estimate is almost certainly low if history is a guide.  I thought it would be useful to look at how far off previous estimates from Congress on Medicare costs have been  in the past.

When Medicare was passed, various future estimates of costs were made by Congress.  Those estimates were wildly off base, so much so that it is doubtful that Medicare would have passed, had there been an accurate cost estimate.  The chart above shows that the actual costs for Medicare programs run from a minimum of 200% over budget up to 1700% over budget.

Lyndon Johnson & Medicare cost estimates

There is an interesting interview on National Public Radio [emphasis added] which presents evidence that President Johnson deliberately underestimated the cost of Medicare to get it passed.  The interview is with James Morone, co-author of the Heart of Power: Health and Politics in the White House.   In it, the show’s host, Renee Montagne, asks the author about comments President Johnson made about the original cost estimates for Medicare.

Democrats Could Learn From LBJ’s Medicare Push (National Public Radio/Morning Edition, August 26, 2009, Renee Montagne)

[NPR-Montagne]: There are tapes of Johnson showing a different side of how he worked [Medicare's passage].

[James Morone, co-author of The Heart of Power: Health and Politics in the Oval Office]: Johnson maneuvered every step of the way getting this bill through Congress, and one of the things he did — and this is a little dicey in today’s climate — was suppress the costs. So this young kid gets elected from Massachusetts, Ted Kennedy, in 1962, and Johnson is explaining to him [over the phone] how you get a health bill through. And what he tells him is don’t let them get the costs projected too far out because it will scare other people:

“A health program yesterday runs $300 million, but the fools had to go to projecting it down the road five or six years, and when you project it the first year, it runs $900 million. Now I don’t know whether I would approve $900 million second year or not. I might approve 450 or 500. But the first thing Dick Russell comes running in saying, ‘My God, you’ve got a billion-dollar program for next year on health, therefore I’m against any of it now.’ Do you follow me?”

[JM]: We believe, after looking at the evidence, my co-author [David Blumenthal] and I, that if the true cost of Medicare had been known — if Johnson hadn’t basically hidden them — the program would never have passed. America’s second-most beloved program would never have happened, if we had had genuine cost estimates…

That is an amazing piece of history and it seems authentic as it is based on tapes LBJ made of his various conversations.  Most people don’t realize this, but the various pieces of healthcare reform legislation now before Congress use an interesting technique of which LBJ might approve.  Taxes and fines and Medicare cuts would start right away, but spending on the program would be delayed until 2013 or so.  So, the 10-year estimate only has 6 or 7 years of actual expenditures built in.  Nice.

Can we trust Congress?

For a variety of reasons, estimating costs of government-run health insurance reform seems to be quite difficult, even assuming our leaders are trying to do so fairly and honestly.  So, I would not take current estimates of the cost of health insurance reform as being cast in stone.  In fact, I would assume they are very low as Congressional estimates for Medicare have always been in the past.

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