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Health Care Budgeting 101: Fiscal Scolds Earn an “F-“

(photo by amboo who?)

(photo by amboo who?)

From the WaPo’s summary of the House health reform bill:

A previous version of the House bill carried an estimated cost of $1.04 trillion over 10 years, but House negotiators were able to lower the price tag in part by expanding Medicaid coverage to a broader slice of the population, the equivalent of all individuals who earn about $16,200 per year. The original House legislation had sought an increase to 133 percent of the federal poverty level, or about $14,400 per year, the same level proposed in the Senate bill.

The adjustment reflects findings by congressional budget analysts that covering the poor through Medicaid — which pays providers far less than Medicare — is far more cost-effective than offering subsidies for private insurance policies, something the bill would provide to middle class individuals who lack access to affordable coverage through their employers.

The main revenue sources in the House bill include a surcharge on wealthy taxpayers and changes to Medicaid and Medicare worth about $500 billion in cost savings over 10 years, according to the CBO.

CBO estimated that a Public Option available only to the uninsured, self-insured and small businesses (less than 20 employees) would have saved the federal budget $110 billion over ten years, if the PO paid health care providers at Medicare rates plus 5 percent. The savings would be only $25 billion if the PO were required to negotiate rates with providers. If Congress chooses negotiated rates, it raises budget costs by $85 billion for the limited access exchange(s).

These saving would have arisen because with lower prices for public option insurance, and pressure on private insurers to lower their premiums or lose market share, there would have been less need for federal subsidies to achieve the same level of “affordability.” So the switch from Medicare+5% rates to negotiated rates means that premiums for everyone in the exchanges, both public and private plans, will be higher, whether you get a subsidy or not, and on top of that we’ll need $85 billion more in subsidies.

Given that increase, the House needed to lower the bill’s total costs, so it removed about 3 million or so people from the exchange; those whose income is between 133 percent and 150 percent of the federal poverty level will become eligible for Medicaid, whose payment rates to providers are so much lower than private and Medicare rates that it saves more money than it would have cost to provide subsidies in the now higher-cost exchange markets.

So, in order to protect private insurers from competition from a lower-cost PO and avoid paying providers Medicare rates plus 5 percent, which Blue Dogs think is too low, the House bill would pay providers even less than Medicare and take more than 3 million people completely out of the private market.

But of course, the market carve-out for Medicaid saves money, which means that if Blue Dogs really wanted to save money, they would enlarge the Medicaid carve out — say, up to 250 or 350 percent of FPL. In other words, if the fiscal-deficit scolds were genuinely serious about reducing the cost of the reform bill, they would expand eligibility to public health care to a lot more people and forget about shielding private insurers from competition.

But then they’d be accused of creating a powerful argument for Medicare for all, and we can’t have that. Because as Joe Lieberman reminds us, those government entitlement programs just increase the deficits — uh, except when they lower them.

The next time one of these clowns complains about the federal deficit, they deserve a rhetorical pie in the face. Use Rediwhip; it’s cheaper.

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John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley