For Health Bills, A Year Makes a Big Difference

The coverage provisions in the Senate health bill have a much lower ten-year cost that do the coverage provisions in the House bill. According to the Congressional Budget Office (CBO), the coverage provisions in the Senate bill will cost $848 billion from 2010 through 2019, while the corresponding costs for the House bill are $1.052 trillion, more than $200 billion higher. (Please keep in mind, though, that the total cost of both bills is higher because of other provisions.)

When I was reading newspapers this morning (yes, I still get ink on dead trees), I noticed several claims that this difference in gross costs could be traced to a timing difference. The main coverage provisions in the House bill start in 2013, while the corresponding provisions in the Senate bill start in 2014.

This seems like a potentially important point, so I took another look at the cost estimates to get a sense of how big this effect is. The answer? It’s big. As illustrated in the following chart, a year makes a big difference in the gross coverage costs within the ten-year window:

The coverage costs in the House bill (denoted in gray) do indeed ramp up a year earlier than the costs in the Senate bill (denoted in orange). As a result, the ten-year cost estimates include seven years of coverage efforts under the House bill, but only six years under the Senate bill.

That timing difference accounts for almost all of the gap between the $848 billion gross coverage cost of the Senate bill and the $1.052 trillion of the House bill. (One way to see this is to note that the seventh year of the House bill costs about $200 billion, almost exactly equal to the difference in the ten-year cost estimates).

Bottom line: Over the ten-year window, the gross coverage costs of the two bills appear quite different, with the Senate bill coming in about 20% lower than the House bill. But much of that difference is timing. Over longer time periods, the gross coverage costs are much closer together.

5 thoughts on “For Health Bills, A Year Makes a Big Difference”

  1. I wondered how the Senate bill managed to “cost” less.

    Has anyone seen a comparison of the total (private, business and government) projected spending on health care? Seems like that is what we should be focused on.

    I think we have the wrong metric.

  2. I am sure that back when they created Medicare and Medicaid they had people like you explaining how this thing will not cost all that much. Now we have a 100 Trillion dollar unfunded liability because of it.

    I guess you must have gotten an extra does of koolaid to be able type this out.

  3. Hi Bill: As the saying goes, you manage what you measure, and the number one measurement one hears is the ten-year budget window cost estimate. That measure has its uses, not least being that it bears on the President’s $900 billion target. But, as you say, it is very limited and can be heavily influenced by things like small timing differences. As you may know, the Actuaries at CMS are also doing evaluations of the bills. I haven’t had a chance to write about the CMS analysis of the House bill, but one nice feature is that it considers all national health expenditures, not just federal.

    Hi John: Sorry if my piece is unclear, but I think I am making a non-kool aid point: The headline cost figure in the Senate bill appears 20% lower than in the House bill, but that’s primarily because the Senate bill starts a year later and not because it’s actually less expensive in an ongoing, fundamental sense.

  4. What I was trying to say is that these numbers don’t really mean anything because these bills fundamentally changes medical insurance and service industry. They will have huge unforeseen consequences and what ever budget these people came up with do not take these things in to consideration. Just as the consequences of the Medicare and Medicaid plans where not fully realized when they were first created.

  5. I’ve been reading a few posts and truly and enjoy your writing. I’m just setting up my own blog and only hope that I can write as well and provide the reader so much insight.

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