What are the real “costs” of reform?

Critics of health reform found some fuel for their fire in reports just issued by the Congressional Budget Office and the CMS Actuary.  Both official government agencies increased their previous estimates of federal costs of insurance overhaul—thus renewing questions about reform’s long-run economic impact and political tactics used to get the bills through the House and Senate.  Both reports put the new cost projections well above an economic threshold that swing-vote legislators were unwilling cross only two months ago.

As an experienced forecaster and economist, I doubt both the original and the revised estimates for three reasons. 

• The cost estimates are based on highly speculative assumptions.  The future values of variables in the estimating equations are SWAGs at best.  In particular, I believe they grossly overestimate consumers’ economic capacity to hold up their end of the “bargain.”
• The federal government has a very poor record of estimating the future costs of previous health care legislation.  Actual government expenditures have been well above earlier estimates much more often than they have been below, but they’ve never been right. 
• In their defense, the federal employees responsible for estimating reform’s costs were not given the time or resources to do a good job over the past year.  Indeed, the CBO Director recently issued a very reasonable statement about the unreasonable pressures put on his staff, but it did not get the attention it deserved.

Nevertheless, I believe that the estimated federal cost of the latest reforms is a red herring.  To me, the critical question is whether the reforms do anything to improve the quality of care and to stop the persistent increase in expenditures.  The latest laws fail on both these counts.  Insurance overhaul simply shifts a substantial portion of the rising costs of a dysfunctional delivery system from the federal government to payers and purchasers (including state governments).  A lot of excellent ideas for improving the system were lost last fall when Democrats in Congress began to focus on passing a law rather than improving the delivery system. 

I think we’ve got to get refocused on efficiency and effectiveness in the medical marketplace.  We do not need estimates of reform’s costs for the federal government to know that the status quo is unaffordable for everyone.  We will be even deeper in a financial hole if we spend the coming years fighting over the minutia of regulations when we ought to be re-engineering the entire health care delivery system.  What do you think?  Alternative points of view are welcome and will be published.  That’s what a healthy debate is all about.