By John W. Schoen Senior producer
msnbc.com
updated 10/26/2009 5:59:30 PM ET 2009-10-26T21:59:30

If and when Congress gets around to passing a bill to overhaul the health care system, the price tag will be in the hundreds of billions of dollars. Where is all that money going to go?

I am really confused about the health care bill. The latest one passed by the finance committee does not have the public option, yet it will cost us $829 billion. What is the money being used for? Is it costing us $829 billion to insure 29 million people?
-Rodney, Louisville, Ky.

It’s not hard to be confused by the details of the current proposal to overhaul health care.

The confusion starts with “health care system” itself. It's a mind-bogglingly complex concoction of health care providers, insurance companies, drug makers, hospitals, employers, and government, among others. With the possible exception of the handful of members of Congress involved in creating a single health care bill, no one really has a clue which elements of the 12 separate proposals will become law. Until the plan is finished, it's equally unclear which corners of the system will gain or lose from the changes.

The most detailed overall cost estimates so far come from the Congressional Budget Office, which came up with the $829 billion gross price tag for what has become the starting point in the debate over the final bill. The Senate Finance Committee now has to take its bill and try to merge it with proposals from three House committees. Since Congress rarely makes a difficult choice without a major deadline approaching, our guess is the final horse-trading and arm-twisting will go right up to the Christmas recess.

Still, to the extent there is any agreement about health care reform, the Senate bill is a good place to start. The bill would set up health insurance “exchanges” where people who don’t have insurance at work or through the government could shop for coverage. The goal is to make it easier to shop for a health plan by standardizing what’s covered and what’s not.

Details about how these exchanges would be managed are still sketchy; they may be state-run under federal guidelines.

The biggest single cost of $461 billion through 2019, according to the CBO, would cover subsidies paid to help people buy coverage on the exchanges. The Senate bill provides a sliding scale for anyone earning less than four times the federal poverty level, or $73,240 for a family of three.

These exchanges would sell plans provided by private insurance companies, which have succeeded in keeping a government-run insurance company, the so-called "public option," out of the Senate bill so far. But the idea isn't dead. On Friday, Democratic Congressional leaders said they're still pressing to allow the government to compete with private insurers as a way of driving down costs. Critics say it will force private insurers out of the market and limit consumers' choices. Opposition in the Senate remains strong.

One compromise would involve setting aside government grants to set up non-profit "insurance cooperatives." Another would put the "public option" on hold, but include a "trigger" that would revive the idea if the rest of the plan falls short on expanding coverage.

The next biggest cost would be an expansion of Medicaid, the federal program administered by the states that covers low-income individuals and families. Under the Senate bill, eligibility would be raised to 133 percent of the poverty level. That would cost $345 billion, according to the CBO. Another $23 billion would provide a tax credit to help small businesses offer coverage to their employees. The plan also counts on a variety of savings, including cutting annual increases in Medicare payments to providers.

The plan also would be offset by $510 billion in spending cuts and a variety of "revenue raising measures," also know as taxes, to the tune of $296 billion. The way the CBO figures it, the whole thing would actually reduce the federal deficit by $12 billion over the next decade.

These are, of course, complete guesses. Predicting the cost of a Starbucks latte in 2019 is hard enough; it's pretty much impossible to nail down the cost of a medical procedure or new drug that hasn’t even been developed. Still, there’s something about writing numbers in a spreadsheet, especially if you throw in a few decimal points, that gives these figures a sense of precision they don’t deserve.

Then there's thew usual congressional budgeting sleight-of-hand that would make a Hollywood accountant envious. Every year, for example, Congress budgets big cuts in Medicare payments to doctors, only to relent at the last minute and rescind the cuts. The Senate plan analyzed by the CBO includes a one-year fix to this charade.

But a Senate measure to end this accounting gimmick for a decade failed last week on the grounds that it would cost $250 billion for which there are no offsets. So unless Congress actually goes through with steep cuts to doctors fees that were set at 21 percent for next year before they were rescinded, that $250 billion will be spent anyway.

These forecasts are also attempting to quantify the impact of changes in 300 million people’s behavior. Will the plan actually lower costs by encouraging people to take better care of themselves? Will employers drop coverage and, say, offer their own subsidies to help workers buy insurance on exchanges? Will insurers lower premiums because the pool of those covered is now larger? Or have to increase them if only the sickest people sign up?

The CBO estimates that when you add up the people who will get insurance from exchanges or Medicaid, and subtract the people who will lose employer-sponsored coverage, by 2019 there will be a net gain of 29 million insured people who would not be covered if the plan isn’t adopted.

This is the most problematic number of all. The plan assumes that subsidies will provide a carrot to prod individuals to sign up. The stick will come in the form of a $750 penalty (phased in by 2019) if they don’t. Employers who don’t offer coverage would also be subject to penalties. The size of those penalties has been one of the more contentious parts of the debate. But no matter how high or low they’re set, it’s pretty tough to try to predict what millions of people will choose to do when presented with the final details.

So we really don’t, and can’t, know what all this will cost. If you take the CBO’s 10-year projection numbers, the annual cost per person works out to $2,858.62. But that’s not a very accurate accounting: the plan doesn’t kick in until the middle of the next decade. So spread the cost over five years; in that case the annual per person cost would be $5,717.24.

That may sound like a lot, but the average annual health insurance premium today is $13,375. Which raises these questions: Will all these changes actually force down the annual premium for health care? Or is the $829 billion an unrealistic assessment of what this will cost?

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