Health Care Is All About The Cost

(MoneyWatch)  The Obama Administration and the Democratic Congress have set themselves a goal of reforming the U.S. medical system. There are various bills under development in both the House and Senate. The key arguments revolve around how many people will be covered and at what cost. The other issue related to cost is how will the money be generated to cover any increased spending by the government on the new health care that they will provide.

The Republicans have been countering the proposals by arguing that they would eventually shift everyone to the government plan, control costs through limiting care options, and add billions of dollars to the Federal budget at a time of already record deficits. It is clear that the Democrats know substantial costs will be levied on the Federal government as tax increases on the "rich" as well as on health insurance premiums have been discussed.

One idea that is hoped will reduce costs is to make it a mandate that everyone be insured. This spreads the cost over a larger population which might reduce costs for some while also increasing it for others. Massachusetts passed such a mandate a few years ago combined with a state insurance subsidy for the poorest. This program has seen costs increase much more then planned and now the state must limit those who can join it. In fact at the moment the state plans to kick out legal immigrants as it does not have the money to cover them. They would have to purchase their own insurance or pay the fines related to not having coverage.

New York state commissioned the Urban Institute to review options for itself with cost estimates. That report was released recently and may be found here. Four separate options were looked at from single payer state plan for all residents to a tax credit based "Freedom Plan" where people would buy their own coverage. The single payer plan would achieve universal coverage through the fact that all people in the state would be required to join but at a cost of $21,287 per person annually to the government. That money would have to be generated through tax increases or spending reforms. Of course New York businesses and residents would have more money available as they would not be paying for their health care insurance. At Page iv of the report the authors do point out that the single payer plan would have shortages of providers at least at the beginning. This has also been the experience in Massachusetts. There are not enough primary care doctors available to treat all patients.

These two examples illustrate how hard it will be to have a Federal plan that covers everybody in an economic fashion. If a single payer system is adopted there would be major cost shifting to the government. The money would have to be generated through taxes or borrowing. Like in the New York study there would be money freed up through employers and employees not having to pay for their insurance which could be moved to the government coffers. A tax on high incomes like the House has proposed would raise funds if their is a partial private-public plan.

Despite all of the argument and discussion funding, cost and cost control are the issues that need to be resolved before the U.S. can have this kind of "reform".