According to the preliminary analysis just released by the Congressional Budget Office and the Joint Committee on Taxation, the Senate Finance Committee’s health bill will cost American taxpayers $829 billion over ten years.
How much confidence should we have in that forecast of $829 billion? Not too much, based on a July 2009 study from the Joint Economic Committee (JEC) “Are Healthcare Reform Cost Estimates Reliable?” which provides historical evidence that:
Since the end of World War II, major healthcare reform proposals have generally always cost more—sometimes significantly more—than the highest cost estimates published while the legislation was pending.
A certain level of error in cost projections is to be expected, especially regarding sectors as complicated as healthcare. But as Table 1 shows (the graph above displays some of these results), the foregoing examples represent extreme under-estimates, with error ratios ranging from 1.2:1 to 17:1. What explains this phenomenon? For reasons that may never be entirely understood, healthcare appears to be an area with great room for overly optimistic assumptions regarding changes in the behavior of patients and providers, technological innovation, the practice of medicine, program take-up rates, future health cost inflation, and the likely success of proposed cost-control mechanisms.
For example, in 1967 the House Ways and Means Committee predicted that the new Medicare program, introduced the previous year, would cost $12 billion in 1990. However, actual Medicare spending in 1990 was $110 billion—almost 10 times higher than the original estimate. The JEC’s study shows that all Medicare programs cost significantly more than the initial forecast, always by a factor of more than 2:1, and in the case of the Medicare Disproportionate Share Hospital (DSH) program, the actual cost ($17 billion) was a staggering 17 times higher than the original estimate by Congress (see chart for actual vs. estimated costs for these and four other Medicare programs).
Bottom Line: If history serves as an accurate guide for the actual cost of the current healthcare bill, we should be prepared for a ten-year cost of closer to $1.6 trillion, double the current estimate of $829 billion, and maybe even much higher.