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Will Obama's healthcare plan reduce costs?

Congress and ordinary Americans debate whether Obama's healthcare plan will reduce costs or increase them.

By / Staff Writer / March 4, 2010

On Wednesday. President Barack Obama delivered a speech urging Congress to pass his healthcare plan. The president said the proposed reform would reduce costs for millions of Americans.

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As President Obama tries this week to put his healthcare plan on a fast track toward passage, he's still struggling to persuade Americans that the plan will reduce costs.

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"My proposal would bring down the cost of healthcare for millions – families, businesses, and the federal government," Mr. Obama said Wednesday in making his pitch. "Let's get it done."

But after a year in which Democrats have been debating and refining reform plans, sometimes with Republican input, the cost savings that Obama touts remain a matter of sharp debate.

While the president says that his numbers add up to real progress against runaway medical costs, his Republican critics bluntly say the opposite.

"This bill adds a new healthcare entitlement when we have no idea how to pay for the entitlements we already have," Rep. Paul Ryan (R) of Wisconsin said at a healthcare summit Obama convened last week.

Who's right? Before diving into some of the numbers, it's worth noting that American voters appear to have concluded that costs are a very big concern. Most Americans like the core Democratic ideas, but a majority also worries that the reforms won't tame fast-rising costs.

In an ABC News/Washington Post poll earlier this month, 59 percent called Obama's plan "too expensive." And the same poll in January found a majority saying they expect their own healthcare costs to go up – and the nation's overall health tab to rise – if the proposed changes become law.

The Obama plan is designed to extend insurance to some 31 million additional Americans by 2019. It hinges on a mandate for individuals to buy insurance or pay a penalty – and on subsidies to help moderate-income families afford the insurance.

In the year 2019 alone, the government would spend about $84 billion in subsidies and $87 billion to expand Medicaid to cover more low-income Americans, according to a Congressional Budget Office analysis of a Senate bill, similar to Obama's plan.

In crafting his new plan, with an eye toward winning votes of enough Democrats in the House, the president boosted the subsidies above what the Senate bill envisioned.

In all, the plan would cost nearly $1 trillion over the next 10 years. Obama plans to pay for that mainly by squeezing waste or excessive costs out of Medicare and imposing a tax on high-end health insurance plans. "The bottom line is, our proposal is paid for," he said Wednesday.

But here's why not everyone agrees that cost control will happen:

– The tax on high-end plans has been reduced, in part because it was opposed by labor unions. The administration still says its plan overall will not add to federal deficits, but the tax on "Cadillac plans" was supposed to help impose some cost discipline on the entire health system. Now it wouldn't do that to the same degree.

– Private-sector premiums will remain high. What's important for Americans is not just how much government spends on healthcare, but how much people have to spend total – including insurance premiums and out-of-pocket expenses. An Obama-style plan would have little impact on premiums for most Americans, a CBO analysis found in December. That means no big spike (good news), but also no big drop.

– Some healthcare spending is left out of the bill. A key example, Mr. Ryan says, is a $371 billion cost for the what Congress calls the "doc fix," or preventing annual cuts in reimbursements to doctors.

Perhaps most important is a general point: Almost all the key numbers come with a high degree of uncertainty. Some surprises could be negative, such as if more employers than anticipated opt to drop health benefits. Some could be positive, such as if experiments with new models of care reap gains faster than expected.

Given these uncertainties, the key divide between Obama and Republicans is philosophical: Democrats generally are confident that an enlarged role for government can help rein in costs, even as it expands healthcare coverage to more Americans. Republicans favor new efforts to harness marketplace forces, while targeting specific programs to reduce the number of uninsured.

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