NCPA - National Center for Policy Analysis

HEALTH COSTS AND HISTORY

October 20, 2009

Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health care entitlement will reduce red ink by $81 billion over 10 years.  To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health care programs, says the Wall Street Journal.

Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable.  We know that over the past four decades precisely the opposite has occurred:

  • Prior to the creation of Medicare and Medicaid in 1965, health care inflation ran slightly faster than overall inflation.
  • In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy.
  • Much of this reflects advances in technology and expensive treatments, but the contrast does contradict the claim of government as a benign cost saver.

Next let's examine the record of Congressional forecasters in predicting costs.  Start with Medicaid, the joint state-federal program for the poor:

  • The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing.
  • Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched -- after adjusting for inflation.
  • Its current cost is $251 billion, up 24.7 percent or $50 billion in fiscal 2009 alone, and that's before the health care bill covers millions of new beneficiaries.

Medicare has a similar record:

  • In 1965, Congressional budgeters said that it would cost $12 billion in 1990.
  • Its actual cost that year was $90 billion.
  • The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors -- the rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8 percent in 2009), so a program that began at $4 billion now costs $428 billion.

The lesson here is that spending on nearly all federal benefit programs grow relentlessly once they are established.  This history won't stop Democrats bent on ramming their entitlement into law.  But every Member who votes for it is guaranteeing larger deficits and higher taxes far into the future, says the Journal.

Source: Editorial, "Health Costs and History; Government programs always exceed their spending estimates," Wall Street Journal, October 20, 2009.

For text:

http://online.wsj.com/article/SB10001424052748703746604574461610985243066.html

 

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