Understanding $1 Trillion

29 Jul

WARNING: This post contains data. I’ve tried to make everything very clear by putting it in graphic form, but if you are allergic to numbers you might want to pop a couple of Benadryl before you read any further.

Glad you’re still with me. Today, I want to talk about $1 Trillion. That’s at least one of the numbers we’ve been told is going to be the 10-year cost of health reform, and according to the folks at the Congressional Budget Office (CBO), the preliminary analysis of both the House and the Senate bills look quite similar.Other lower figures have been cited, but they just aren’t as fun to say as “One…..TRILLION…..Dollars…..!” (Certainly has a Dr. Evil-esque ring to it, doesn’t it?) But what in the world does it mean? Granted, it’s a lot of money. So much, in fact, that it makes it hard to comprehend. In cases like this, a fun thing some people do is try to put it into more concrete terms that people can identify with. “It’s like buying a movie ticket, a tub of popcorn, and a Coke for every man, woman, and child in China every day for nearly two months.” (I made that one up, but I think the math comes close.) Jerry Seinfeld has a funny clip about McDonald’s that makes this point about the ridiculousness of extremely large numbers.

Well, first of all, the big “T” is the net cost (i.e., additional government outlays not offset by increased revenues or savings from other programs). It’s also the total amount for 10 years, which is the longest budget window the CBO permits itself to practice fortune-telling. So, if we want to look at an annual number (assuming costs were even over all years, which they’re not), it would be $100 Billion a year. That’ll take all of China to the movies for about a week.

But, alas, we’re not talking about taking China to the movies, we’re talking about healthcare. So what does $1 Trillion get us, exactly? Well, it depends on whose doing the buying. First, it helps to see what the “status quo” so ominously referenced by President Obama during his press conference last week, will look like:Alright, with our starting point established, what does the CBO say the House bill would do to enrollment? Well, it seems to keep employer based coverage robust, increase Medicaid enrollment, cover a bunch of people through the new exchanges, and significantly reduce the number of uninsured. The Senate bill looks fairly similar according to CBO’s analysis, but the biggest differences are that employer-based coverage and Medicaid coverage shrink somewhat and the number of uninsured doesn’t decrease nearly as much under the Senate’s version:

All of this left me asking: If one of the primary goals of health reform is to help everyone get coverage, shouldn’t we be looking more closely at the connection between what reform will cost and what we’re getting in terms of newly covered individuals? So, I took a look at what the additional annual federal outlays would be for each additional person who moves from uninsured to insured. I was a bit surprised. The House bill looks to extend coverage at a much lower incremental cost.

In fairness, though, we can see that the House bill would not reduce the number of uninsured at all in the first three years (that’s why there aren’t any maroon bars there). So, I decided to take the total net costs (remember, that’s the $1 Trillion CBO scored for both the House and Senate bills), divide it by the reduction in the number of uninsured persons over the 10 year period, and then divide that by 10, to get a better yearly average with which to compare the two plans:
Yep. The House comes in as the much better way to spend $1 Trillion if we’re most concerned about covering everyone. For all of the talk about making the health care system more efficient, I hope that someone pays attention to the need for that efficiency to start at the beginning, with the drafting of health reform legislation.
1 Comment

Posted by on July 29, 2009 in Uncategorized


One response to “Understanding $1 Trillion

  1. Moses Tafarki

    July 29, 2009 at 8:11 pm

    Nice way to explain the costs associated with the healthcare reform. I actually thought the use of the video clip touched on something we are not talking about and that is; are people eating more "buggers" because the buggers are good or because the marketting for the buggers are great?One Trillion Dollars by any measurement is huge, but what are Americans getting for it? So far we know that not everyone will be covered. We are hearing that even those covered will have to face some form of rationing. But what is the quality of care we are getting for one trillion dollars? Does anyone know? Does anyone care?


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