Thursday, July 23, 2009

Democrats and the Congressional Budget Office are dramatically underestimating how much current health care proposals will cost. We have read the House bill and the CBO report about it, and both are setting up taxpayers for an expensive surprise if government health care becomes law.

The House version of the health care reform bill proposes a payroll tax on those firms that are not providing workers with health care. The tax varies by payroll size, reaching a top rate of 8 percent, but the rate is much lower for the smallest businesses.

For an outfit with a payroll of less than $250,000, the tax is zero. Clearly, firms facing no tax, as well as others, would prefer this subsidized or no-cost government insurance to private plans. As many small firms switch from private plans to low or no cost, taxpayers will foot the bill.

Perhaps CBO underestimated how many small businesses there are or how many workers are employed by such firms. The Census Bureau shows that firms with fewer than 10 employees have an average payroll of just $91,000. Firms with fewer than 10 employees employ 12.3 million people and pay $18.5 billion a year in health insurance, which amounts to the substantial sum of $185 billion over 10 years. Most, if not all, firms in this category would want to switch to the no-cost government health plan because they would be freed from these billions in insurance fees.

This single example implies that the cost of health care change is almost 20 percent higher than CBO claims. But that is just part of the tab. There are surely many smaller firms that would want to switch to low-cost government insurance.

CBO — incredibly — assumes that only 3 million people will switch from employer-provided coverage to government insurance. But the Lewin Group, a health care policy research and management consulting firm, estimates that 119 million Americans will switch from their current private insurance to government insurance. If these figures are accurate, the program’s cost could easily be $4.5 trillion over 10 years, not the $1.04 trillion CBO is claiming. That new financial burden would be a disaster for the deficit.

CBO’s estimated costs are so wildly off the mark that we would hope the agency would at least be sensitive to the appearance of conflicts of interest. But on Tuesday morning, Doug Elmendorf, head of CBO, took the unprecedented action of meeting with President Obama to discuss CBO’s estimates of the costs of health care reform. “Of course, the setting of the conversation and the nature of the participants do not affect CBO’s analysis of health reform legislation,” Mr. Elmendorf wrote unconvincingly on his Web site.

The National Journal reports that Mr. Obama told a Democratic congressman who suggested changes in the health care plan: “You’re going to destroy my presidency.” On Wednesday morning, the president tweeted: “Health Care Reform Opponents Playing Politics With Our Lives.” Given this recent questionable behavior, it’s hard to imagine that Mr. Obama didn’t apply similar pressure on CBO. There is no plausible explanation for CBO’s curious lowball estimates for the cost of government health care.

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