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AP Photo - Ross D. Franklin
The major health care bills under consideration in Congress all share a striking similarity: they enact their funding mechanisms immediately, but delay the benefits for three years.
This is not unprecedented -- George W. Bush's Medicare Part D program did the same thing. It also makes sense from a rules perspective. With so many changes in the works, it takes time to re-write the rules and carry out the endless tasks from re-training employees on the new ground game to writing all of the new software that keeps everything sorted out.
Of course, there are some immediate benefits to the legislation. These include a ban on insurance companies canceling policies because a customer contracts an expensive disease such as cancer. The Baucus bill would also provide $5 billion dollars between 2010 and 2013 to help provide coverage to those who have been denied coverage because of an existing condition. Additionally, those who receive benefits under Medicare Part D will see a 50% drop in the price they pay for brand-name drugs.
Although there are some immediate benefits, the majority of benefits do not begin until 2013 while the funding mechanisms kick in immediately. They include a reduction in Medicare benefits and new taxes on "Cadillac" health care plans. Again, this same strategy was used when Medicare Part D was passed under the Bush Administration.
The reasons for this are not immediately apparent, but are very important. Under Congressional budgeting rules, a 10 year time period is used to assess the impact of new programs. This is why you often see reports that some new program will cost "$X billion over ten years". This of course makes sense also. For large changes it takes time to let the dust settle before accurate assessments can be made.
What this 13-years-of-funding-for-10-years-of-benefits scheme truly means is essentially a 30% understatement of the program's true costs, and for some this seems to be the issue of greatest concern. For the second ten years of the program, costs will "rise" 30%, since that ten years will have to be paid for entirely within that ten years.
"It means that the full cost of the program is underestimated in the 10-year window that you are looking at," said Gail Wilensky, former Medicare Administrator during the George H.W. Bush Administration. "It's not like we've never seen this before, but people need to understand what's going on."
This means of greater concern under this 13/10 scheme is Medicare Part D, now almost four years old. The total costs for this program through 2015 are estimated to be $724 billion dollars. Imagine a 30% rise in this total for the next ten years of benefits. Because this program is already law, and four years into its funding cycle it is certain that these costs will rise during the next cycle. The healthcare bills currently under consideration have not been passed into law, and the funding mechanisms are still subject to modification.
While some object to the rise in government spending under these programs, it is important to note that this money would be spent anyway, either by a tax-and-spend government scheme or a paycheck-deduction employer scheme. At least with the government scheme there are far larger economies of scale and the evenhandedness of law on all participants.
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