Health care, apples to apples

The other day I was highly offended that I could find no one in government had assembled an apples-to-apples comparison of the two key cost estimates for Obamacare, those of the Congressional Budget Office and of the Office of the Actuary. So I’ve dug around for a couple of days and drew up my own comparison.

The comparison is of some importance as a number of people have said the actuary’s estimates show increased federal spending on health care. A few have claimed that the Obama administration suppressed the actuary’s report till after the legislation passed. (The chief actuary emphatically denies this.)

The discussion continues here, here and here.

So I compared what the actuary’s report compares to the freshest information on the table when Obamacare passed. That would be the CBO’s letter to Nancy Pelosi, dated March 20. (The main bill passed March 21. The reconciliation cleanup passed a couple of days later.)

This table says it all:

Billions of Dollars CBO Office of the Actuary CBO-Actuary % Difference Who has more favorable view?
Coverages 938 948 -10 -1% CBO
Cost Savings -436 -469 -33 8% Actuary
Net cost 502 479 23 4% Actuary

This table looks like it was easy to do. Believe me, it wasn’t and to explain why would put you to sleep.

The table tells you that the two arbiters were within 1% on the cost of new coverage – stuff like Medicaid and CHIP expansion. CBO saw things slightly rosier than the Office of the Actuary.

It also tells you that the actuarial office projected more cost savings and a lower net cost than the CBO did, but not by much. Howlers have said the Office of the Actuary proved Obamacare was more expensive than promised, but this table shows that CBO and the actuarial office were telling substantially the same story.

As any actuary will tell you, if two independent projections are within 10% 10 years out, they are telling you the same thing. And if anything, the Office of the Actuary seems to like the bill more than CBO.

This is particularly true if you look at coverage cost by year, as the following chart does:

Who's the optimist here?

This shows the cost of enhancements to Medicaid , CHIP et al., by year. The blue red line is the Office of the Actuary’s estimates. The red blue line is CBO’s estimates.

The table shows that the costs don’t really start building until 2014. For the first two years, the actuaries project higher costs, as the red line is above the blue one. But starting in 2016, the actuaries project lower costs. That’s why the red line falls below the blue one.

To summarize: The actuaries project lower coverage costs overall, and they project costs to decelerate faster than CBO does.

The bill has other components; there are new Medicare taxes on high incomes, a tax on excessively rich employer health care packages, etc. Both the CBO and the actuaries are skeptical of a couple of elements – a voluntary long-term care program that seems to beg to be adversely selected against; and medical cost cutting that seems hard to implement.

Even where they are skeptical, the two arbiters agree on the direction of the skepticism, though they may disagree on magnitude. Both see the long-term care program as raising a lot of cash now as it incurred liabilities at an unsustainable level.

So the LTC program would reduce net health care spending while it accumulated huge liabilities in the out years. That’s why I excluded any long-term care analysis from my comparisons.

But I really don’t see where anyone can claim the actuaries’ report sheds new light on the health care legislation passed this year. And what is new is slightly favorable to Obamacare, not the other way around.

Update: National Journal is hosting debate on this topic here.

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2 thoughts on “Health care, apples to apples

  1. bullfighter says:

    So which is red and which is blue? The two paragraphs immediately following the graph contradict each other.

    There is another reason the “howlers” were wrong: There was nothing fundamentally new in the Actuary’s report. Essentially all the wording was a copy of an earlier report (from January 8), just the numbers were updated for the reconciliation bill.

  2. [...] Family Foundation mimics my take on the Actuary vs. CBO debate, and adds some hand-wringing about how models aren’t [...]

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