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New Cost Estimate on Senate Bill

The Office of the Actuary for Medicare has issued its long-awaited cost estimate for the Senate's health care reform bill. I've only had a few hours to digest it and talk with outside experts.* But these seem to be the main points:

The bad news: Overall, according to the estimate, we'll be spending more on health care come 2019 than we would if we did nothing.

The not-so-bad news: The difference is tiny, in relative terms, and even smaller than it was for the House bill, which was hardly big.

The good news: The underlying trend is in the right direction. As more time passes, it's more likely we'll save money.

Why do I say that? It has to do with two competing trends that explain how the Medicare Actuary arrives at its bottom line.

Dramatically expanding and strengthening health insurance leads to higher overall health spending, primarily because people who have good health insurance tend to use more health care than people who don't. And--please, please remember--mostly this is a good thing. The primary reason uninsured and under-insured people get less health care is that they can't afford it.

In other words, we want these people getting more health care, at least relative to what they are getting now. And, as a society, we should expect to expend more resources on them, relative to what we expend now.

The key question, going forward, is whether we can somehow offset this increase--ideally, in a way that reduces medical spending across the board and that doesn't lead to inferior medical care.

And the CMS Actuary implies that this may happen. It's just going to take some time.

According to the projection, under reform the government will reduce its spending on Medicare significantly. Establishing a commission on the cost of Medicare will reduce it further, although not by much in the early years. And a tax on the most expensive health insurance plans will curb spending in the private sector.

Over time, the cumulative effect of these changes will grow, so that the gap between what we'd spend on health care without reform and what we'd spend with it will shrink. In 2019, the last year of the projection, the difference--that is, the amount of extra money our society devotes to health care--is a measly $23 billion out of more than $4.5 trillion total.

That's 0.5 percent--not five percent, but zero-point-five percent. If that were the price of expanding insurance to around 40 million people, it'd be an absolute bargain.

But the actual price may be even lower, at least as time goes forward. The Medicare Actuary does not project beyond the 2019 window. But it's reasonable to assume that if the trend holds until 2019, it will hold for a few years beyond, to the point where medical care spending really would come down.

And, in the end, the long-term trends on spending are what we really care about. It's the potential for health reform to gobble up huge chunks of our national wealth twenty, thirty, or forty years from now. That's the whole argument behind "bending the curve."

The key caveat--which the Medicare Actuary itself makes very clear--is that Congress would have to follow through on its promised cuts and not repeal them, the way it has the annual adjustments in Medicare provider rates. This is a valid concern. But while the Medicare Actuary seems dubious that the cuts will stick, there are good reasons to think they will, as the Center on Budget and Policy Priorities recently noted in a paper (and as I've argued in these pages repeatedly).

Keep in mind, too, that the Medicare Actuary--like the Congressional Budget Office (CBO)--makes extremely conservative assumptions about the effects of reforms like information technology, greater study of comparative effectiveness, and the like. Plenty of experts, particularly those in close touch with the medical industry, think those reforms will yield more savings--and faster than the official actuaries think. A new paper from the Center for American Progress and Commonwealth Fund, written by Harvard's David Cutler and the Fund's Karen Davis, makes precisely this point.

Finally, remember that--whatever the costs to society as a whole--the impact on individuals will, for the most part, be positive. The recent CBO analysis of premiums suggested that the majority of people with insurance would see their premiums fall and, in some cases, fall dramatically. The slack would be made up primarily by some combination of relatively affluent taxpayers and providers who will have to make do with less (hopefully in ways that actually mean more efficient, higher quality care).

None of which is to say the bill couldn't be a lot better. If anything, this ought to be a kick in the pants for the administration and Congress--a reminder that, in the final negotiations over legislative language, it'd be good to push a little harder on the drug industry and maybe hospitals too (although the Medicare Actuary warns that some providers will actually lose money, so that would imply we are pushing some of them hard enough already). Or maybe this would be a good rationale for strengthening the Medicare commission, which became weaker as it moved through the legislative process.

Saving more money and doing it more quickly is possible, but it requires a stronger bill. In the meantime, the bill as written would dramatically improve financial security for all Americans, reduce the medical and insurance bills for most, and do it for a price to society that even relatively conservative estimates suggest would be a pittance. That's a pretty good deal.

*I'm publishing this now, without fuller vetting, only because I've learned that the first impressions tend to last in politics--and I've seen, already, Republicans using this report to blast health reform as unaffordable. As I get more information and perspective, I'll update this item.