• Some good news

    I just came back from a lunch where someone asked me why I wasn’t afraid of the PPACA bankrupting us.  These kind of questions are interesting.  I’m not afraid of PPACA bankrupting us because PPACA just isn’t that much money when you’re thinking about the economy.  Don’t get me wrong; $100 billion or so a year is a lot.  It’s just that when you are talking about $2.5 trillion a year in health care costs, $100 billion isn’t that much.

    Look at it this way, 2008 GDP was $14.6 trillion.  Let’s say PPACA cost $100 billion that year (which it obviously didn’t).  That means PPACA would be about 0.7% of GDP.  That’s not what’s going to bankrupt us.  Health care, on the other hand, at 17% of GDP could arguably bankrupt us.

    And, it turns out, PPACA may be a decent bargain.  Cue Igor Volsky:

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    To expand coverage to millions of Americans without significantly altering spending growth trends requires efficiences, and the law delivers. Beginning in 2014, as 30 million+ individuals begin receiving health care coverage and visiting doctors, health care expenditures will naturally increase. Costs will continue to grow higher than current law until around 2015, at which point the law’s efficiencies kick in — Medicare savings, the excise tax on so-called Cadillac health plans, the Medicare payment board — and costs begin to “decelerate.” As you can tell from the graph, between 2017 and 2019 the red line is below the blue line — the annual growth rate is decreased under reform for that period.

    Moreover, the actuaries predict that as a result of these savings, Medicare spending will decline $86.4 billion from previous projections due to reforms. “Specifically, average annual Medicare spending growth is anticipated to be 1.4 percentage points slower for 2012–19 than we projected in February 2010. By 2019, it is projected to grow 7.7 percent—0.9 percentage point more slowly than we projected in February 2010,” the report concludes.

    I say this all the time, but once more with feeling.  There are legitimate reasons to dislike the PPACA.  I know, and respect, people who think it won’t get the job done.  But it’s not going to bankrupt us.  If you’re truly concerned about the deficit, look elsewhere.

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    • Do you seriously believe the alleged cost-savings will actually be realized? Seems to me that expected cost-savings such as those never materialize because the forecast is based on stylized facts from the past. So without them, simple algebra suggests that health care spending will increase about $160 to $190 billion per year (in 2007 terms) because of the expansion in health insurance. While our relatively high GDP overtime meant that we did not have to sacrifice expenditures on other goods and services relative to past generations and other countries because of our huge appetite for health care spending, that additional amount of money will mean that we finally will. Also, the economic incidence of the additional spending is unclear .

      I hope you are right and I am wrong.

    • Where are you getting those numbers? You claim simple algebra, but there is nothing at all simple about these kinds of economic analyses. I am happy to consider your question, but you can’t just throw out numbers as facts.