New health care bill pros and cons: Will it cut costs?

The Congressional Budget Office says the new health care bill will be deficit neutral. But economists aren't sure. What are the financial pros and cons of the bill?

By , Staff writer

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    Rep. John Shadegg (R) of Arizona holds a news conference on Jan. 13 on Capitol Hill to make the case that there are hidden costs in the new health care bill. In general, forecasts are not categorical, pointing to both pros and cons for the legislation.
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The vote in the House of Representatives is over, but a key debate about the new health care bill remains: Will it cut America's medical bill?

Here's a look at the pros and cons of how the reforms might affect the pocketbooks of Americans as taxpayers and as health care consumers.

By the broadest measure – the overall amount of money America spends on health care – the reforms will result in only a minor change compared with the rise that's expected to happen anyway, according to some official forecasts.

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That's good, say the backers of reform. It shows that more than 30 million Americans can get health insurance by that year without adding to federal budget deficits.

But to critics, that's bad. It shows that the reforms won't fundamentally change the runaway pace of US health spending – including both public- and private-sector dollars.

With or without reform, the overall US medical bill will account for about 21 percent of gross domestic product in 2019, or 3 percentage points higher than today, according to a recent analysis done within the Health and Human Services Department. (See story with graphic on "How Obama plan might work".)

Pro: Reform will push costs down

Backers of health care reform say it will expand insurance coverage to more Americans while also tightening the reins on medical inflation. A Congressional Budget Office (CBO) report on Saturday, just before the House narrowly approved the reform bill, said the measure will insure 32 million more people in 2019.

The expansion of coverage would cost the government an extra $172 billion in that year, the CBO says, or about $5,375 per person newly insured. Most of that spending is the result of a boost in eligibility for Medicaid or of subsidies to help families comply with a new mandate to buy insurance coverage if they don't have it.

Supporters say the expanded coverage is a bargain if you consider the reform's wider framework, including curbs on the growth of Medicare spending. In 2019, when the law's key provisions have taken full effect, the nation's overall spending on health care will be just $25 billion more than if no health care bill had been passed.

In effect, the plan would be covering many more people at about the same price: $4.7 trillion in that year. That estimate comes from Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services.

President Obama and congressional Democrats planned their package to be "deficit neutral," with additional federal spending on health care offset by either tax hikes or the Medicare curbs.

So much for government costs. What about individuals and families?

The cost of a given amount of insurance coverage could fall by 10 to 30 percent due to the reforms, for people who don't have employer-sponsored coverage, the CBO estimated late last year. The agency, a nonpartisan scorekeeper for legislation, said premiums probably won't change much for people in employer-based plans.

Mr. Foster's analysis, meanwhile, saw no big change in the out-of-pocket costs that families pay on top of insurance premiums, compared with what they'd be paying without the law.

Con: Reform won't cut costs

Mr. Obama's critics say his plan will follow a familiar pattern seen since the introduction of Medicare in the 1960s: Extend a new entitlement without clear cost-control mechanisms and the result will be that spending exceeds expectations.

In this case, "entitlement" may not be quite the right word. But the government will be expanding Medicaid to millions of families just above the poverty line, and extending subsidies to help millions more comply with the mandate to buy insurance.

Even neutral observers have raised questions about whether Obama's planned Medicare savings – vital to keeping his plan deficit-neutral – will materialize.

Reform proponents have cited the CBO analysis as evidence that the reforms will bring federal budget deficits down substantially in the decade beginning in 2020, for example. But CBO itself is careful to qualify its forecast.

"It is unclear whether such a reduction in the growth rate of [Medicare] spending could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care," the agency says in its report.

Foster, the Medicare actuary, offers a similar dose of skepticism in his analysis. He says the planned squeeze in federal payments may prompt many hospitals to drop out of the program. "Simulations by the Office of the Actuary suggest that roughly 20 percent of [Medicare] Part A providers would become unprofitable within the 10-year projection period as a result of the productivity adjustments," Foster wrote in January.

Another big uncertainty is how many employers will choose to pay a penalty rather than offer insurance as an employee benefit. The more firms do that, the more people will be looking to the government to subsidize care purchased on a new insurance exchange.

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