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U.S. health plans have history of cost overruns
As President Obama and Congress craft the largest national health insurance program since the creation of Medicare and Medicaid in 1965, they insist that the final product will add “not one dime” to the federal deficit.
But cost projections are notoriously unreliable, and history is filled with examples of federal programs - especially in health care - that cost far more than originally predicted.
In 1965, the House Ways and Means Committee estimated that the hospital insurance program of Medicare - the federal health care program for the elderly and disabled - would cost $9 billion by 1990. The actual cost that year was $67 billion.
In 1967, the House Ways and Means Committee said the entire Medicare program would cost $12 billion in 1990. The actual cost in 1990 was $98 billion.
In 1987, Congress projected that Medicaid - the joint federal-state health care program for the poor - would make special relief payments to hospitals of less than $1 billion in 1992. Actual cost: $17 billion.
The list goes on. The 1993 cost of Medicare’s home care benefit was projected in 1988 to be $4 billion, but ended up at $10 billion. The State Children’s Health Insurance Program (SCHIP), which was created in 1997 and projected to cost $5 billion per year, has had to be supplemented with hundreds of millions of dollars annually by Congress.
Barely two weeks in office, Mr. Obama signed a $33 billion bill that will add 4 million mostly low-income children to the SCHIP program over the next 4 1/2 years.
All of these numbers were assembled and published in July by the Senate Joint Economic Committee.
The White House and Democratic leaders insist that the proposed health care reform being debated on Capitol Hill will be different. They also note that the costs of some federal health care programs, including the Medicare prescription-drug program, have come in below projections.
But the official arbiter of costs in Congress, the Congressional Budget Office, hints that comprehensive health care reform could go the way of most other health care initiatives from Washington.
The CBO projected earlier this month that the health care bill passed by the House will reduce cumulative budget deficits by $109 billion over a decade. But it also warns that its estimates are “subject to substantial uncertainty.”
When Medicare and Medicaid were created, policymakers were making changes in health care that went well beyond historical experience, said Henry Aaron of the Brookings Institution.
“Models were not adequate to capture the complex interrelationships” among patients, doctors, hospitals, pharmaceutical firms, medical-device manufacturers and other major players in the health care system, he said.
The major actors - including patients, doctors and hospitals - quickly learned how to use Medicare to their best advantage, which caused costs to outdistance projections, said Joseph Antos, a health care policy analyst at the American Enterprise Institute.
Financial incentives affecting these actors played a major role.
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