How big a number is $196 billion?

The Senate health bill will provide $196 billion per year in subsidies to poor and working people. That’s a big number…

Democrats are on the brink of enacting an imperfect, historic bill that will provide health coverage to an estimated 31 million people, that will correct egregious defects in our current health insurance system, and that will make large investments in community health centers and other critical public health resources.

By 2019 when the reforms are fully implemented, the Senate bill would provide about $196 billion per year down the income scale in subsidies to low-income and working Americans.

Even policy wonks have trouble getting their heads around such a big number. With due allowance for the back-of-the-envelope nature of this calculation, $196 billion exceeds the combined total of federal spending on Food Stamps and other nutrition assistance programs, the Earned Income Tax Credit, Head Start, TANF cash payments to single mothers and their children, all the National Institutes of Health, and the Department of Housing and Urban Development. (I admit to some uncertainty about that last one. We may have to leave HUD behind…)

Some progressives have decided that they cannot support this imperfect bill. We have 196 billion reasons to disagree.

Author: Harold Pollack

Harold Pollack is Helen Ross Professor of Social Service Administration at the University of Chicago. He has served on three expert committees of the National Academies of Science. His recent research appears in such journals as Addiction, Journal of the American Medical Association, and American Journal of Public Health. He writes regularly on HIV prevention, crime and drug policy, health reform, and disability policy for American Prospect,, and other news outlets. His essay, "Lessons from an Emergency Room Nightmare" was selected for the collection The Best American Medical Writing, 2009. He recently participated, with zero critical acclaim, in the University of Chicago's annual Latke-Hamentaschen debate.

8 thoughts on “How big a number is $196 billion?”

  1. Without the cost control of a reasonably strong public option or very strict regulation, the vast majority of those 196 billion reasons go directly to increasing insurance company profits, not to mention that price increases to absorb the subsidies, inevitable without very strong competition, will put upwards pressure on premiums even for those who don't receive subsidies. And don't get started on the nonsense of mandatory medical loss ratios, which, far from reducing costs, actually encourage wasteful spending and overpayments to doctors so long as those payments and spending count at medical costs under the weak regulation in place.

    Reform without cost control is no reform at all, doomed to collapse under the weight of increasing medical costs, and the cost control measures left in the current legislation are grossly inadequate to the task of keeping insurance affordable. The various rosy projections you see bandied about are all based on a set of assumptions similar to the assumption that insurance companies won't do things like find loopholes in the law and deliberately overpay doctors so that they can keep more profit rather than refund premiums to consumers.

  2. Robert, Robert, whatever will we do with you? The insurance companies swore the ponies-and-butterflies promise to make nice, don't you trust them? Time out for you – go stand in the corner!!

  3. Let's look at a couple of other really big numbers: 15%-20% of $196 billion is $29.4billion-$39.2billion. Figures on lobbying activity and campaign contributions for the insurance industry as a whole total in the neighborhood of $135 million for 2009. Considering that health insurer outlays comprise just a subset of that figure, they are receiving a pretty damn good return on their investment.

    While some people will undoubtedly be helped by this legislation they number substantially fewer than the number that will be newly insured. The political system is broken. Politely saying "thank you sirs" for the crumbs that are swept from the table does nothing but reinforce the institutional corruption. In this sense, the Senate bill does far more harm than good.

  4. Robert, I'm not sure I understand why insurance companies would have any particular incentive to meet their medical loss ratio through "wasteful spending and overpayments to doctors" rather than spending on patients. But even if it were true that the "weak" regulations defining the medical loss ratio encouraged wasteful spending, doesn't this current piece of legislation put us in a position to tweak those regulations down the line, and ultimately make the medical loss ratio more effective?

  5. It's funny how Mark will roll out a set of arguments against school vouchers and then ignore those same exact concepts when talking about healthcare.

  6. BTW, I agree with him about school vouchers which is why I think his approach to analyzing the impact of the present bill, if not infantile, is certainly naive.

  7. Rob is right–

    " mandatory medical loss ratios, which, far from reducing costs, actually encourage wasteful spending and overpayments to doctors so long as those payments and spending count as medical costs under the weak regulation in place."

    Under the bill, insurers in the large group market can keep only 15% of premiums, so it's in their interest to pay doctors and hospials more, and jack up premiums to reflect their higher reimbursements. If the entire pie is growing, their 15% is more in absolute dollars.

    Right now , private insurers pay many hospitals 115% to 125% of what it actually costs hospitals to care for patients–or would cost them if they operated as efficiently as benchmark medical centers. So hospitals are enjoying 15% to 25% profit margins. Pharma has a 16% profit margin. Specialists in the U.S. make three to four times what specialists earn in other developed countries–after adjusting for differences in cost of living.

    Private insurers are over-paying hospitals, drug-makers, device-makers and many specialists. This is a one reason why healthcare is so expensive, and why premiums are so high. (The other reason is that we're overtreated, over-tested and over-medicated.)

    Right now, private insurers enjoy profit margins of just 3%–but with millions of new customers, and nothing putting a brake on health care spending, they can hope to see those margins begin to climb. This is why the stocks have taken off.

    The only hope: that the Medicare Commission in the Senate bill is given the authority it needs to rein in Medicare spending without Congressional meddling. Right now, the Commission remains in the Senate bill, but it has been neutered. For instance, it isn't allowed to cut reimbursement ot hospitals for ten years. An amendement introduced by Rockefeller, Lieberman et. al. would change that. (Yes, Lieberman, the insurance industry doesn't compete with Medicare, so it doesn't mind if Medicare reins in Medicarfe spending.) Ezra Klein explains the amendement here

    If that amendment passes, and if the Medicare Commission is able to bundle its recommendations in a package that Congress has to vote on as a package (no editing) within a limited amount of time (as proposed) then we'll start to see some serious cost-cutting on Medicare's part.

    Already, Medicare has proposed cutting fees for CT scans and other tests by up to 28% next year. It also would slash fees for docs who purchase or lease the equipment and do the tests in their offices. (These doctors recommend twice as many tests). Finally, it would cut fees for cardiologists by 6% and lift fees for primary care docs by 4%,– starting Jan 1. Congress has until Jan 1 to veto these changes in doctors' fees.

    If Medicare starts making cuts, won't doctors and hospitals simply charge private insurers more? It would seem likely. .

    But some insurers have said privately that if Medicare provides political cover, and begins cutting, they'll follow Medicare's lead.

    If they did this they would, of course, be shrinking the pie –and their 15% would be less in absolute dollars.

    But I can still see some insurers doing this–particularly big non-profits such as Kaiser. And perhaps some of the non-profits in Massachusetts.

    IF Medicare actually begins cutting costs next year, that could help us get ahead of the inflation curve. (Private insurers' reimbursements to docs, hospitals and patients have been going up an average of 8% a year for the past ten years. Medicare's pay-out have been going up roughly 6%. It would also help if the Office of Personnel Management began to get tough when negotiating federal employees' premiums with insurers– those premiums have been going up an average of 8% a year. If the govt refused to pay more, private insurers would have to cut back on their reimbursements to hospitals and specialists.

    If you add up what the government spends on Medicare, Medicaid, SCHIP, and insurance for govt' employees, it pays more than 50% of the nation's health care bills. It should use that clout to bring down the cost of drugs (there is still a slight hope that Medicare will given the right to negotiate with drug makers), hospital care and specialist' care.

    We do need to raise fees paid to doctors who care for Medicaid paitents– right now they are paid 70% of what they would make if providing the same service to a Medicare patient. And fees for primary care, geriatric care, palliative care and other "cognitive" care that involves listening to and talking to paitents need to be hiked.

    But prices for virtually everything else in our health care system should be cut. And we need to realign financial incentives so that doctors and hospitals have no incentive to over-treat. Under the Senate bill, Medicare is encouraged to do all of this. But unless a Medicare Advisory Panel is shielded from Congressional interference, Congress will never let Medicare implemenet those reforms.

    Keep your eye on the Rockefeller/Lieberman amendment.

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