Understanding Obama’s Healthcare Math

President Barack Obama used only-in-Washington accounting Wednesday when he promised to overhaul the nation's health care system without adding "one dime" to the deficit. By conventional arithmetic, Democratic plans would drive up the deficit by billions of dollars. The president's speech to Congress contained a variety of oversimplifications and omissions in laying out what he wants to do about health insurance. A look at some of Obama's claims and how they square with the facts or the fuller story:

___
OBAMA: "I will not sign a plan that adds one dime to our deficits either now or in the future. Period."

THE FACTS: Though there's no final plan yet, the White House and congressional Democrats already have shown they're ready to skirt the no-new-deficits pledge. House Democrats offered a bill that the Congressional Budget Office said would add $220 billion to the deficit over 10 years. But Democrats and Obama administration officials claimed the bill actually was deficit-neutral. They said they simply didn't have to count $245 billion of it — the cost of adjusting Medicare reimbursement rates so physicians don't face big annual pay cuts.

Their reasoning was that they already had decided to exempt this "doc fix" from congressional rules that require new programs to be paid for. In other words, it doesn't have to be paid for because they decided it doesn't have to be paid for. The administration also said that since Obama already had included the doctor payment in his 10-year budget proposal, it didn't have to be counted again. That aside, the long-term prognosis for costs of the health care legislation has not been good.

CBO Director Douglas Elmendorf had this to say in July: "We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

___
OBAMA: "Nothing in this plan will require you or your employer to change the coverage or the doctor you have."

THE FACTS: That's correct, as far as it goes. But neither can the plan guarantee that people can keep their current coverage. Employers sponsor coverage for most families, and they'd be free to change their health plans in ways that workers may not like, or drop insurance altogether. The Congressional Budget Office analyzed the health care bill written by House Democrats and said that by 2016 some 3 million people who now have employer-based care would lose it because their employers would decide to stop offering it. In the past Obama repeatedly said, "If you like your health care plan, you'll be able to keep your health care plan, period." Now he's stopping short of that unconditional guarantee by saying nothing in the plan "requires" any change.

___
OBAMA: "The reforms I'm proposing would not apply to those who are here illegally." One congressman, South Carolina Republican Joe Wilson, shouted "You lie!" from his seat in the House chamber when Obama made this assertion. Wilson later apologized.

THE FACTS: The facts back up Obama. The House version of the health care bill explicitly prohibits spending any federal money to help illegal immigrants get health care coverage. Illegal immigrants could buy private health insurance, as many do now, but wouldn't get tax subsidies to help them. Still, Republicans say there are not sufficient citizenship verification requirements to ensure illegal immigrants are excluded from benefits they are not due.

___
OBAMA: "Don't pay attention to those scary stories about how your benefits will be cut. ... That will never happen on my watch. I will protect Medicare."

THE FACTS: Obama and congressional Democrats want to pay for their health care plans in part by reducing Medicare payments to providers by more than $500 billion over 10 years. The cuts would largely hit hospitals and Medicare Advantage, the part of the Medicare program operated through private insurance companies. Although wasteful spending in Medicare is widely acknowledged, many experts believe some seniors almost certainly would see reduced benefits from the cuts. That's particularly true for the 25 percent of Medicare users covered through Medicare Advantage. Supporters contend that providers could absorb the cuts by improving how they operate and wouldn't have to reduce benefits or pass along costs. But there's certainly no guarantee they wouldn't.

___
OBAMA: Requiring insurance companies to cover preventive care like mammograms and colonoscopies "makes sense, it saves money, and it saves lives."

THE FACTS: Studies have shown that much preventive care — particularly tests like the ones Obama mentions — actually costs money instead of saving it. That's because detecting acute diseases like breast cancer in their early stages involves testing many people who would never end up developing the disease. The costs of a large number of tests, even if they're relatively cheap, will outweigh the costs of caring for the minority of people who would have ended up getting sick without the testing. The Congressional Budget Office wrote in August: "The evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall." That doesn't mean preventive care doesn't make sense or save lives. It just doesn't save money.

___
OBAMA: "If you lose your job or change your job, you will be able to get coverage. If you strike out on your own and start a small business, you will be able to get coverage."

THE FACTS: It's not just a matter of being able to get coverage. Most people would have to get coverage under the law, if his plan is adopted. In his speech, Obama endorsed mandatory coverage for individuals, an approach he did not embrace as a candidate. He proposed during the campaign — as he does now — that larger businesses would be required to offer insurance to workers or else pay into a fund. But he rejected the idea of requiring individuals to obtain insurance. He said people would get insurance without being forced to do so by the law, if coverage were made affordable. And he repeatedly criticized his Democratic primary rival, Hillary Rodham Clinton, for proposing to mandate coverage.

"To force people to get health insurance, you've got to have a very harsh penalty," he said in a February 2008 debate. Now, he says, "individuals will be required to carry basic health insurance — just as most states require you to carry auto insurance." He proposes a hardship waiver, exempting from the requirement those who cannot afford coverage despite increased federal aid.

___
OBAMA: "There are now more than 30 million American citizens who cannot get coverage."

THE FACTS: Obama time and again has referred to the number of uninsured as 46 million, a figure based on year-old Census data. The new number is based on an analysis by the Kaiser Commission on Medicaid and the Uninsured, which concluded that about two-thirds of Americans without insurance are poor or near poor. "These individuals are less likely to be offered employer-sponsored coverage or to be able to afford to purchase their own coverage," the report said. By using the new figure, Obama avoids criticism that he is including individuals, particularly healthy young people, who choose not to obtain health insurance.

Still the President says uninsured Americans are more common than we think. President Obama, continuing to mount a fresh surge on health care, argued Saturday in his weekly address that nearly half of all Americans under age 65 will lose their health insurance within the next decade. "We're talking about middle-class Americans," Obama said. "In other words, it can happen to anyone."

Treasury officials released the findings of a 10-year study that bolsters the president's case. Based on a sample of more than 17,000 respondents from 1997 to 2006, the study - "The Risk of Losing Health Insurance Over a Decade: New Findings from Longitudinal Data" - found that 48 percent of Americans are uninsured at some point in a 10-year span and that the number jumped, to 57 percent, when taking people under age 21 into account.

In a conference call Friday with reporters, Treasury officials, who would speak only on condition of anonymity, repeatedly emphasized the universal nature of the danger - saying it is a "misperception" that the uninsured represent only a small slice of the population. In fact, they said, the report found that many more people, including in the middle class, went for stretches without insurance over the years.

"If you're under the age of 21 today, chances are more than half that you'll find yourself uninsured at some point" over the next decade, Obama said in the address, prepared for radio and Internet broadcast. "And more than one-third of Americans will go without coverage for longer than one year." He continued: "I refuse to allow that future to happen. In the United States of America, no one should have to worry that they'll go without health insurance - not for one year, not for one month, not for one day. And once I sign my health reform plan into law - they won't."

Still when it comes to the uninsured, it seems that the White House has lowered the number from the original 47 million to 30 million but how did the White House get these numbers. Peter Orszag walks us through the decision to downgrade the number of American citizens who cannot afford health insurance to "more than 30 million". On Wednesday night, President Obama stated: "We are the only democracy--the only advanced democracy on Earth--the only wealthy nation--that allows such hardship for millions of its people. There are now more than 30 million American citizens who cannot get coverage."

Today, the Bureau of the Census released the most recent data on the number of uninsured Americans. The report, Income, Poverty, and Health Insurance Coverage in the United States: 2008, reveals that 46 million people were uninsured in 2008, the last year for which there are data. These data are based on the Current Population Survey. With two different numbers, there has been some confusion as to which is accurate. Well, both are -- and the President's version is more focused on the relevant target population for health reform since it excludes unauthorized immigrants.

The Census report indicates that of the 46 million uninsured individuals, 34 million were native born and 2.8 million were naturalized citizens. The report thus shows that there were 36.8 million uninsured U.S. citizens (native born and naturalized) in 2008. An alternative calculation includes legal immigrants, which based on a figure from the Pew Hispanic Center would bring the total to something like 39 million.

Some ambiguity surrounds how to treat individuals who are already eligible for public insurance programs like Medicaid and S-CHIP but do not enroll in those programs, which estimates from the Kaiser Commission on Medicaid and the Uninsured suggest may amount to millions of individuals. These individuals are uninsured but some interpretations would suggest they should not be counted among those who "cannot get" coverage. Subtracting them from the total would produce a number closer to 30 million.

To be conservative, the President thus stated that "more than 30 million American citizens" cannot get coverage. I can't get this math to work. The actual number of the uninsured, according to the census, is 46.3 million. Of those, 36.8 million were natives of the US or naturalized citizens. There is no "alternate figure" for the number of American citizens that includes legal residents. Legally resident immigrants are fine people. But they are, definitionally, not American citizens.

Now when I click through to the Kaiser link that Orszag provided, I find that it says that "A quarter of the uninsured (11 million) are eligible for public programs but not enrolled." 36.8mm - 11mm is 25.8 million, not more than 30 million. But of course, that 11 million figure is from 2007 and will have grown, because that's what population statistics do--there's no evidence that we've gotten better at enrolling people in Medicaid since 2007. I mean, the Medicare rolls have gone up. But the number of poor people went up in tandem. Demographics being what they are, the number of seniors on Medicaid for nursing home care went up as well.

So it's actually something less than 25.8 million. How much less? I don’t know. A "conservative" estimate would have been "more than 20 million American citizens", not "more than 30 million". Of course, if they'd wanted to be really conservative, they would have grappled with the other figures in that study, such as the 15%--6.7 million +/- natural growth--which Kaiser designated as being able to afford health insurance. To be fair, the study also concluded that some of them might have difficulty obtaining it for various reasons, so it's hard to know exactly how many of them to include. Still, the number of people who can afford insurance, but choose not to buy it, is not zero, or even close to zero. Indeed, their existence is implied in the very fact that reform advocates are expecting to use their premiums, through the magic of pooling, to help pay for the uninsurable, and the indigent. If they don't exist, we're in even deeper financial trouble than we thought.

But really, in most states, an income of $66,000 for a family of four, or $32,000 for a single, is not too poor to spend several hundred dollars a month on insuring against a catastrophic health event, which is how much insurance costs when you risk rate it, include cost sharing, and don't load it up with mandatory coverage. Obviously, there are exceptions: people in high cost cities that mandate high cost policies (New York), and people who have a gnarly pre-existing condition that makes them uninsurable. But you should probably account for the rest, somehow, if you are going to talk about those who are "unable" to obtain insurance.

Someone trying to be truly conservative would also have attempted to control for the fact that government figures tend to show that only around half of the uninsured lack insurance for as much as a year--though of course, that too, is tricky, because it seems that 40% of the very long-term uninsured are Hispanic, and we have to assume that a lot of those are illegal immigrants, who would be the group most likely to lack insurance. We already threw them out of the sample. Trying to back a reasonable modifier out of that would be hell.

Still, once you adjust for (mostly young people) who are choosing not to buy insurance, and families taking a short term gamble between jobs, neither of whom I think can technically be said to be "unable to afford insurance", you're conservatively going to end up with a number below 20 million. Generously, a serious "conservative estimate" would be "more than 15 million". But of course, the administration does not really want to be conservative; they want to have the flashiest numbers possible for their plan. All administrations do.

Still, even if you say that my modifications are too indeterminate (fair enough), and go back to the figures that Orszag himself laid out; his calculations are off by millions of people. Does it matter? 15 or 20 or 25 million people is still a lot of people. But it matters for the same reason that the difference between 66% and 80% matters. You can't have a debate where everyone gets to bring their own statistics.

Then President Obama says he won't add one dime to the deficit, but a lot of dimes remain unaccounted for. WHEN POLITICIANS start talking about paying for programs by cutting "waste and abuse," you should get nervous. When they don't provide specifics -- and when the amounts under discussion are in the hundreds of billions of dollars -- you should get even more nervous.

President Obama outlined, in his speech to Congress last week, a sensible framework for health-care reform. But here are a few questions he has yet to answer:

-- What exact combination of new revenue and spending cuts is the administration proposing?

-- Will that financing be adequate to underwrite the cost of expanded coverage -- not only within the 10-year budget window but beyond?

-- What mechanisms does the administration envision, if any, to control costs if they are greater than anticipated or if projected savings don't materialize?

One approach the president endorsed Wednesday night was to tax insurance companies that offer excessively generous plans, although he did not offer details of the threshold at which this would apply. The administration apparently would set the allowable limit higher -- and therefore bring in significantly less money -- than the plan being crafted by Senate Finance Committee Chairman Max Baucus (D-Mont.). Mr. Baucus, whose proposed tax is estimated to reap $200 billion over 10 years, would tax plans exceeding $21,000 for a family of four. He would index that cap to the regular consumer price index, not the far higher rate of inflation in medical costs. The lower the initial limit and the lower the inflation index, the more effective the tax would be in restraining health costs, so to the extent that the administration and Mr. Baucus diverge, the Baucus plan is preferable.

Beyond the insurance tax, Mr. Obama was vague about where the money would come from, and administration officials have since declined to provide specifics. Previously, the administration outlined $635 billion in Medicare and Medicaid savings, but it is not clear what it now envisions beyond cutting payments to Medicare Advantage plans that receive higher payments than regular Medicare providers and reducing subsidies to hospitals for treating the uninsured as that population diminishes. Squishy talk about cutting "hundreds of billions of dollars in waste and fraud" isn't enough.

One idea that, like the Monty Python parrot, is not dead yet is some version of the administration's proposal to limit the value of deductions for the highest-bracket taxpayers. The administration originally proposed generating more than $300 billion in revenue by limiting the wealthiest taxpayers, who pay marginal tax rates of 33 and 35 percent, to deductions worth 28 percent. One tweak might be to leave the existing value of deductions in place but not allow the deductions to rise when the Bush tax cuts expire and the highest tax rates revert to 36 and 39.6 percent.

The president has staked out two principles with admirable firmness: Health reform must not add to the federal deficit, and it must slow the rate of health cost inflation. Now he needs to support the detailed measures that will fulfill both pledges. So much needs to be done to understand Obama’s healthcare math and just how all of it will be paid for without adding a dime to the deficit. Nonetheless Obama’s two pledges now must be fulfilled by not just him but by members of Congress who have had a tough time themselves doing their own math on how to pay for healthcare as well as other government programs. So in the coming weeks, listen closely to how healthcare reform will be paid for and listen closely to how the political pundits and analyses explain how healthcare will be paid for.

Although President Obama gave a great speech on Wednesday, much is still unclear in regards to how exactly healthcare reform will paid for and if for one second anyone thinks it will be paid for by using waste in the system already, than please show me how. The healthcare math is just as unclear and uncertainty as it was going into Obama’s speech and that is the sadness of all of this because we the American people just don’t understand Obama’s healthcare math any more now than we did going into his speech. That’s the irony of the matter and why we need a clear cut plan as to how healthcare reform will be paid for.