Stimulus Bails Out States, Puts off Health Care Reform

President Barack Obama hasn't yet presented his official health care reform plan to Congress. But already, new health spending is spinning out of control. Obama and congressional Democrats included more than $150 billion for health care in the $787 billion stimulus package.

About $90 billion is intended to help states with budget deficits fund Medicaid, the government health insurance plan for the poor. Another $21 billion is earmarked for Obama's plan to update the nation's health care technology systems. Most of the remaining $40 billion will be used to help buy insurance for workers who lost their jobs in the current recession.

Medicaid is exerting a hefty strain on state budgets. The nation's health care system would certainly benefit from increased use of technology. Subsidizing the cost of health coverage for the unemployed would ease some of their concerns in an uncertain economy. But none of these measures will make a discernible impact on the out-of-control costs driving our health system today.

Let's begin with Medicaid. In a just-released report, the Congressional Budget Office reported that federal spending on Medicare and Medicaid will grow from $720 billion today to $1.4 trillion in 2019. CBO estimates that if that rate of growth continues over the next four decades, then total spending on the two programs will reach 17 percent of GDP.

CBO calls such spending "unsustainable." No kidding.

Like other bailouts, this one only punts long-term financing problems further down the road.

The stimulus package would grant states billions to help fill their Medicaid shortfalls, with no strings attached. That sounds more like a bailout than a stimulus plan. Like other bailouts, this one only punts long-term financing problems further down the road.

Taxpayers might be willing to accept a Medicaid bailout, or new insurance subsidies for workers who recently lost their coverage, if Obama had a workable plan to cut national health costs. Unfortunately, his brand of health reform simply revolves around more spending and more mandates.

Obama proposes to reach "universal" coverage by expanding existing federal programs and increasing government's role in the private insurance market. During the presidential campaign, Obama's camp put the annual cost of his program at around $65 billion a year. Accounting for inflation, that comes to an even trillion dollars that we are going to have to pay extra over the next 10 years.

One scenario envisions the government forcing all but the smallest employers to provide coverage, while another would mandate that private insurers accept all applicants. The net results of these forced measures are predictable--higher premiums for everyone.

Obama plans to deal with mounting premiums by giving government subsidies to employers and individuals. But to make his system work, he has to lop off another $200 billion a year in health spending.

Those billions can't be created from thin air. Obama, however, thinks that better health IT will go a long way toward making up the difference. Eventually, he'd like to spend $50 billion on improving health care technology. The $21 billion provided in the proposed stimulus package is just a "down payment."

Advances like electronic medical records and e-prescribing aren't bad ideas, but they won't cut health costs any time soon. In fact, such initiatives may actually raise costs for the foreseeable future. CBO analyzed a scenario similar to the one Obama and Democrats want to implement that would use cash incentives to encourage doctors to upgrade their systems. Whatever savings were incurred, CBO concluded, "would be overshadowed" by the added costs to government.

The merits of the giant congressional stimulus plan are debatable. But lawmakers are kidding themselves if they think that the $150 billion set aside for health care will put our system on the road to reform.

Until Congress gets serious about cutting costs, health care reform will remain little more than a pipe dream.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.

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About the Author


  • Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI), where his research focuses on the economics of health policy — including the Affordable Care Act, Medicare, the uninsured, and the overall reform of the health care system and its financing. He also studies the impact of health care expenditures on federal budget policy.

    Before joining AEI, Antos was assistant director for health and human resources at the Congressional Budget Office (CBO). He has also held senior positions in the US Department of Health and Human Services, the Office of Management and Budget, and the President’s Council of Economic Advisers. He recently completed a seven-year term as health adviser to CBO, and two terms as a commissioner of the Maryland Health Services Cost Review Commission. In 2013, he was also named adjunct associate professor of emergency medicine at George Washington University.

    Antos has a Ph.D. and an M.A. in economics from the University of Rochester and a B.A. in mathematics from Cornell University.

    Follow Joseph Antos on Twitter.

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