Health-care cost estimates mostly unreliable

WASHINGTON —

The fate of White House and congressional efforts to overhaul the nation's health-care system is likely to depend on the price tag, but there's no precise, reliable way to estimate the cost.

"This is very difficult to quantify," said Amitabh Chandra, a professor of public policy at Harvard University and a health-care expert, speaking about proposed health-care changes.

Such "structural shifts are incredibly hard to predict," added Gus Faucher, the director of macroeconomics at Moody's Economy.com.

When Congress returns to work Monday, health care is expected to dominate its agenda. By the end of the month, the House of Representatives hopes to vote on a plan and two Senate committees anticipate finishing their versions.

The plans' future hinges on their projected costs. Estimates from the nonpartisan Congressional Budget Office (CBO) guide Congress. The CBO pegged the 10-year price of a Senate health committee Democratic bill at $1 trillion and of a more comprehensive Senate Finance Committee measure at $1.6 trillion.

The Obama administration and lawmakers say that any health plan would be "paid for," meaning that it wouldn't increase the federal deficit. Obama and top Democrats say that they can fund their plans with a combination of health-care cost savings and as-yet-unspecified higher taxes.

Budget experts sound a warning: In a letter June 16 to senators, CBO director Douglas Elmendorf said, "Many of the specific changes that might ultimately prove most important cannot be foreseen today and could be developed only over time through experimentation and learning."

Key lawmakers concede that the CBO's numbers are imprecise.

"I don't think they're infallible, but CBO does the best it can," said Rep. Henry Waxman, D-Calif., the chairman of the House Energy and Commerce Committee.

The history of government estimates on spending, the economy and, in particular, on health care gives some lawmakers pause.

The Bush administration was criticized widely after revelations that it deliberately had underestimated the cost of the new Medicare prescription-drug initiative as Congress considered the plan in 2003.

Some Republicans had vowed not to back any bill with a price tag of more than $400 billion over 10 years, so the administration said publicly that it would cost less than that. Later, Medicare officials conceded that they hid their internal estimate of $551 billion.

This time there's even more uncertainty about the numbers, because today's health-care proposals are more complex. Among the unknowns:

• Behavior. Consumers and businesses often change their behavior immediately, and sometimes dramatically, in response to major policy changes. New tax laws, for instance, can spur investment in favored assets in amounts far larger than experts project.

John Holahan, the director of the Health Policy Center at the Urban Institute, a liberal policy-research center, said a government-run health-care option, which Democrats are considering, ultimately would lower prices.

"Many health-insurance markets, as well as provider markets, are simply not competitive today," he said.

Others, though, maintain that private insurers will be reluctant to compete with the government, sending more people to public coverage — and driving up government costs.

Dr. David Gratzer, senior fellow at New York's Manhattan Institute, a conservative research center, told the House Ways and Means Committee last week that the public option could have competitive advantages. That means, he said, that "the United States will undermine its private-sector health care, as have other Western countries."

• Technology. Will new medical devices and treatments be more expensive? Or will they detect potential disease early, and thus save patients money in the long run?

"Who knew antibiotics would be discovered? Or there would be changes in treatment for HIV patients?" asked Chandra, of Harvard.

The CBO concedes that making such estimates is very difficult. Former CBO Director Douglas Holtz-Eakin said the agency often tried to rank proposals as to what was most likely to balloon in costs and what was least likely to exceed estimates.

When preparing reports for Congress, he said, "The objective is to make sure that it's as likely you'll be too high as it is you'll be too low."

• Economy. If the recession deepens, would that require the government to insure more people? Would it drive up the cost of federal subsidies?

"You just have to make a lot of assumptions," Faucher said.

Few analysts predicted this recession's depth a year ago. The CBO early last year projected about 1.2 percent growth in 2008; by the fourth quarter, the economy declined at a 6.3 percent annual rate. The CBO also forecast an average unemployment rate of 8.3 percent for 2009, and earlier this year revised it to 8.8 percent. May's unemployment rate hit 9.4 percent, and it's expected to keep climbing.

CBO estimates do have one indisputable virtue though: "They impose discipline," Chandra said.

Senate Finance Committee Chairman Max Baucus, D-Mont., felt that he had triumphed last week when he shrank the projected cost of his bill to just less than $1 trillion.

Still, that's only an educated guess.

"You just can't know what's going to happen," Waxman said.