CBO's Orszag, now Obama's budget chief, and health coverage costs

Orszag's Health Warning
Obama's budget chief delivers a reality check on costs
WSJ, Dec 28, 2008, 10:11 P.M. ET

Democrats are gearing up for a new run at health care next year, which is another way of saying that it's an arms race to promise the most while disguising the costs. So when the expensive realities of "universal" coverage somehow intrude, taxpayers can't afford to let those moments disappear down the Beltway memory hole.

The most recent such moment comes courtesy of Peter Orszag, the former head of the Congressional Budget Office. CBO is the shop responsible for estimating how much legislation will cost the government, and recently it released two important reports on health-care financing that should hit Democrats like a cinderblock, assuming they read them. The executive summary for busy politicians is that liberal health reforms will be extremely costly, while measures intended to "save" money won't even come close to the promises. None of this will come as a revelation anywhere besides Capitol Hill.

Even so, this skepticism is notable because Mr. Orszag has since left CBO to become Barack Obama's budget director. Mr. Orszag's useful work on the unchecked growth of U.S. health spending, especially entitlements, ought to put the cost issue at the center of the 2009 debate. CBO expects government outlays on Medicare and Medicaid to rise as a share of the economy to 6% from 4.2% in a decade -- to $1.4 trillion, or nearly 30% of the entire federal budget -- and eventually ruin federal solvency. If costs grow on pace, U.S. medical spending will rise to 25% of GDP in 2025 from 17% today.

The liberal solution to this looming catastrophe is to add even more obligations. The insurance program for children that Democrats plan to expand in January will cost an extra $80 billion over the next 10 years. Preventing automatic cuts in the reimbursement fees that doctors receive for treating Medicare patients -- as Congress does every few years -- runs to $556 billion.

Those are nothing compared to the centerpiece of the universal health-care agenda -- a "public option" to provide government insurance for Americans of all ages and incomes. In one scenario, CBO finds that allowing the nonpoor to buy into Medicaid would have net costs of $7.8 billion over the next decade. If that sounds like pocket change, keep in mind that Democrats want to make both the public option and private insurance less expensive for beneficiaries by transferring the extra costs onto the government. Just one subsidy plan CBO examined would run to $65.5 billion by 2019. Having the government assume responsibility for high-cost claims would hit $752 billion.

CBO rolls through 115 of these reform options -- and it quickly becomes evident why even Democrats concede that their new health programs will cost $150 billion or even $200 billion per year. The real numbers will be higher. Keep in mind, too, that these are new recurring obligations, not one-time spending like (presumably) the financial bailout. They're politically unrepealable programs that will remain for decades.

Democrats, including Mr. Obama, suggest that covering everyone under a government plan will reduce costs through efficiency. Not according to CBO. It notes that there are "difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal and total costs for health care." CBO also finds that programs designed to trim costs, such as health information technology or comparative effectiveness research, will produce only modest savings.

Mr. Orszag is a centrist liberal, and he supports reforms intended to squeeze waste out of the health markets. But to his credit at CBO he didn't ignore the data. Many Democrats (and a few Republicans) are glad that he's departing and are searching for a CBO replacement who will "score" their bills more favorably. The best outcome would be if Mr. Orszag manages to introduce some health-care sobriety to the Obama White House.