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VOL. 127 | NO. 44 | Monday, March 05, 2012

Soaring Cost Estimate Prompts Health Law Doubts

RICARDO ALONSO-ZALDIVAR | Associated Press

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WASHINGTON (AP) – Cost estimates for a key portion of President Barack Obama's health care overhaul law have ballooned by $111 billion from last year's budget, and a senior Republican lawmaker on Friday demanded an explanation.

House Ways and Means Committee Chairman Dave Camp, R-Mich., wants to know by Monday why the estimated cost of helping millions of middle-class Americans buy health insurance has jumped by about 30 percent for an eight-year period, from 2014-2021.

Administration officials say the explanation lies in budget technicalities and that there are no significant changes in the program that would raise concerns.

Cost estimates for new government programs can be wide off the mark. For example, the actual cost of President George W. Bush's Medicare prescription drug benefit came in lower than estimated, so it wasn't as big a drag on federal finances as initially forecast.

Cost overruns for the health care overhaul could create new political problems for Obama by undermining the law's promise to reduce federal deficits.

The revised health care numbers, buried deep in the president's budget, stumped lawmakers and some administration officials earlier in the week. At a congressional hearing Tuesday, Health and Human Services Secretary Kathleen Sebelius, who is in charge of carrying out the health care law, indicated she was unaware of the changes.

At issue are subsidies that will be provided under the health care law to help middle class people buy private coverage in new state insurance markets that open in 2014.

Last year's budget estimated the cost of the aid to be $367 billion from 2014-2021. This year's budget puts it at $478 billion over the same period.

"This staggering increase ... cannot be explained by legislative changes or new economic assumptions, and therefore must reflect substantial changes in underlying assumptions regarding ... costs," Camp wrote Friday in a letter to Treasury Secretary Tim Geithner.

Republicans say they're concerned about two possibilities: that the estimated cost of the insurance has gone up, or that the administration has quietly determined that more people will be losing employer coverage as a result of Obama's overhaul. That means they'd have to purchase coverage in the new government-subsidized markets, called exchanges.

Either of those explanations could have major consequences for taxpayers and the nation's health care system.

But administration officials say the big increase is no cause for alarm and that the administration is not forecasting an erosion of employer coverage or higher insurance costs.

About two-thirds of the increase is due to effects of newly signed legislation that raises costs for one part of the health care law but still saves the government money overall. The rest is due to technical changes in Treasury assumptions unrelated to the health care law, covering such matters as income distribution in America.

"The estimates do not assume changes in what exchanges look like, the cost of insurance, or the number of Americans who will get their insurance in this new marketplace," Treasury spokeswoman Sabrina Siddiqui said in a statement Friday.

That explanation has drawn skepticism from Ways and Means Committee Republicans.

They say a big reason for their doubts is that the Congressional Budget Office – the fiscal referee for lawmakers – has different numbers from the Obama administration. The budget office is not forecasting a major impact on the health insurance exchanges from the same newly signed legislation that the administration says accounts for most of the $111 billion increase.

That legislation fixed a glitch in the health care law that would have allowed some middle-class people to get virtually free insurance from Medicaid. As a result, projected Medicaid spending under the health care law will drop significantly. But spending for subsidies in the exchanges will go up.

Both the administration and the budget office agree on a bottom line conclusion that the fix ultimately saved money for the government, because the Medicaid savings are bigger than the new exchange costs.

But their underlying numbers differ, and Camp says he wants a full accounting.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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