Friday, April 23, 2010

Will HCR Reduce Costs? [Updated]

A new report from the Medicare's Office of the Actuary says no. Coverage will expand to 34 million more people - but overall medical spending will increase about 0.9% in the first decade to achieve that goal. A couple of notes:

1. Even if this report turns out to be accurate, I'd argue (as the White House does) that HCR is still a bargain.

2. This is a rather pessimistic analysis (that's not to suggest it's flawed; in fact, pessimism is helpful in these sorts of matters). That's just a way of saying that it's extremely difficult to predict the costs of such a sweeping bill (and besides, it's way beyond my expertise). It should also be noted that this report concerns total medical spending, not the deficit specifically. But on the question of the deficit and costs more generally, I would point you to the arguments and analyses of some leading economists and health care experts* who would disagree with this report's finding. Bottom line: it's a tough question! The consensus seems to be that the bill either lowers costs or - in the new report's more pessimistic prediction - comes really close. For a bill that extends insurance to 32-34 million Americans, that's pretty impressive.

3. The fact that I came across this article on the Huffington Post says something about epistemic closure: namely, that it is largely a right-wing phenomenon with no liberal analogue (at least not right now).

*The Commonwealth Fund study I linked to dates from December 2009; for a more updated look at the bill's costs from David Cutler, a Harvard health care economist and one of the study's authors, see this WSJ editorial. He concludes that the bill will cut costs and gives most of its saving measures "passing" grades (Subscription required.)

UPDATE: Some helpful analysis from Jon Chait here. He points out that the Medicare Actuaries are extremely reluctant to factor behavioral changes into their analyses, meaning that their findings sometimes underestimate savings that are created by changing incentives. (This was one of the reasons that the office overestimated the cost of the Medicare prescription drug bill by 37%.) And this bill is chock full of programs aimed at changing behavior and incentives - at least some of which will produce major savings, just not savings which can easily be predicted.