On Wednesday, Congressional Budget Office Director Douglas Elmendorf spoke at a conference on health care reform hosted by the Institute of Medicine, the health arm of the National Academy of Sciences. “The rising costs of health care will put tremendous pressure on the federal budget during the next few decades and beyond,” said Elmendorf. “In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure.”
As Keith Hennessey put it Friday (h/t Reihan Salam), “Never before have I seen a CBO Director so bluntly refute the policy claims of a President and his Budget Director.” Elmendorf’s presentation, which included slides, helps to visualize the problem.
As you can see from the chart above, the two biggest drivers of federal spending on health care entitlements are the effects of aging (i.e., the retirement of the Baby Boomers), and the effects of excess cost growth (i.e., the rising cost of health care). Dealing with the first problem is theoretically easy, but politically difficult: raising the retirement age and/or means-testing Medicare benefits.
Dealing with the second problem involves free-market healthcare reforms that neither Elmendorf nor Obama consider. “It is not clear what specific policies the federal government can adopt to generate fundamental changes in the health system,” writes Elmendorf; “that is, it is not clear what specific policies would translate the potential for significant cost savings into reality.”
Elmendorf is a centrist technocrat; this is what makes his rebuke of the President so striking. But technocratic centrism, in the context of Washington policy-making, is liberalism by default. As a result, while Elmendorf correctly notes that Obamacare will do nothing to curb health-care inflation, he is strikingly optimistic in believing that Obamacare won’t make the problem substantially worse. And small wonder: his projections rely significantly on the research of White House consultant Jonathan Gruber, who happens to have been the intellectual father of Obamacare.
As Megan McArdle and Ross Douthat have noted, Obamacare’s advocates have made many outlandish claims about the law’s benefits. (I wish I could find the 2009 piece in which the editors of The New Republic claimed that if Obamacare passed, people would no longer die of cancer.) Now that the law has passed, those advocates are quietly back-tracking, especially on issues of cost.
A more realistic analysis by PriceWaterhouseCoopers projects that in 2019, because of Obamacare, the average household will pay an additional $9,500 per year for health insurance, on top of the increases caused by conventional health inflation. For a family making $75,000, that is like a hidden income tax of 13 percent, on top of all the other taxes we already pay. One way or another, Elmendorf’s benign cost projections will soon bump up against reality. Let us hope that the law is repealed before we ever have to say “we told you so.”