Sanders Underestimates Costs by at Least 40%


This week’s health policy news roundup curated by Jane Orient, M.D.

Presidential candidate Bernie Sanders has provided a lesson in free-lunch economics, writes Chris Conover. Even the staggering costs estimated by Avik Roy are an underestimate. Sanders and his consultants have grossly underestimated the moral hazard of removing any patient responsibility for payment and the deadweight losses due to increased federal taxes. Considering these, based on the experience of the RAND Health Insurance Experiment, raises the estimate from Sanders’s $40 trillion to $57.4 trillion from 2017-2026, a 71% increase in federal spending.

The Affordable Care Act (ACA) provides the most recent example of the unreliable cost—or “savings”—projections by advocates of federal free lunches.

In the State of the Union message, Obama claimed that thanks to the Affordable Care Act, “healthcare inflation has slowed.” Michael Cannon points out that he is misusing the term “inflation” as he is talking about spending (price times quantity), not prices. At present, ACA seems if anything to have reversed a trend to lower rate of spending growth.

If some states had not declined to expand Medicaid, the costs of ACA would be much higher. States that did so experienced much higher growth in enrollment and costs than anticipated. In Arizona, it cost four times as much, writes Brian Blase.

The effects of ACA on the number of persons who have a health insurance card have been controversial. Between 1987 and 2013, an average of 85.4 percent of Americans had coverage according to the Census Bureau survey, just a few ticks below the 85.7 percent average found in the CDC studies (1997-2013). The two surveys agreed that there was relatively little year-to-year variation in that rate. The law’s first 18 months of full implementation has increased the percentage of the population with health insurance coverage from a 17-year average of 85.7 percent to around 91 percent, an improvement of 5.3 percent. It is not known what would have happened without ACA.

The cost of the ACA regulatory burden is already more than $45 billion, requiring more than 165 million hours of paperwork—and is still growing.

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