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Monday, September 23, 2013

Nauseating Health Care Idiocy from Forbes

A non-blogging friend points me to this new article at Forbes by Chris Conover purporting to show that the "typical family of 4" will see its health care spending rise by $7450. He quotes the Center for Medicare and Medicaid Services (CMS), saying "in its first ten years, Obamacare will boost health spending by 'roughly $621 billion' [that's the CMS quote]  above the amounts Americans would have spent without this misguided law." How stupid is this? Let us count the ways.

First of all, this is not $7450 per year, but over the entire 10-year (or more likely 9-year; he usually refers to 2014-22) period. So he's hyping shock value that isn't there. As he explains, he divides the $621 billion by total population over the period to give a per capita cost, which he then multiplies by 4 to get the cost to his "typical family of 4." So what we're actually looking at, before we start tearing up his calculation, is ($7450/9)/4 = $207 per capita higher spending per year on average. Recall that in 2011 the United States spent $8174.90 per person on health care (see link on how to navigate to the ultimate source for this data,

Second, Conover doesn't understand present value. He writes, "Of course, all these figures are in nominal dollars. In terms of today’s purchasing power, this annual amount will rise steadily." Of course, it is just the opposite. A dollar in 2022 is worth less than a dollar today. In 2013 dollars, the amount is less than $207 per person per year (how much less depends on what you consider an appropriate discount rate). How does an editor not catch this? I have a screen shot to memorialize the error after it eventually gets fixed.

Third, Think Progress's Igor Volsky is completely right when he quotes Paul van der Water of the Center on Budget and Policy Priorities that none of this will apply to the "typical American family" because that family gets its insurance at work. More money will obviously be spent over time, but it won't be spent at the center of the health insurance distribution, if you want to look at it that way. But Conover can't see this point. Instead, he points the finger at President Obama for promising that the ACA would reduce premiums for the typical family by $2500 per year. Not only do two wrongs not make a right, but...

Point four is that what he says is impossible just isn't: "It’s simply not possible for national health spending to rise by $621 billion and for the “typical” family to expect a $2500 (per year!!!!) premium reduction." I don't know if it will happen, but it certainly isn't impossible. Conover is overlooking the fact that the increase in health spending is being funded in ways that don't come out of individual health care spending. High-income taxpayers ($200,000 single, $250,000 filing jointly) are paying 0.9% points more in Medicare tax and an extra 3.8% on investment income. According to Robert Pear of the New York Times, "The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law." The medical device tax will raise $29 billion over 10 years, over $100 billion will come from insurance companies, $34 billion from drug companies, and $150 billion from the "Cadillac" tax, according to the Obama administration. (We can debate the wisdom of this tax, but it doesn't fall on the "typical" family.) We're already at $631 billion over 10 years. If we increased these taxes more, yes, we could use the money to fund premium reductions, most plausibly by increasing the income levels eligible for subsidies.

Then, there's the little matter of the newly insured. By 2022, according to the CMS report Conover cites, 30 million more people will have insurance than would be the case without Obamacare. While many of those people will be receiving subsidies, a lot of them will be paying something for their insurance, adding even further to the sources of income that don't come out of what the "typical family" will pay.

Finally, the new 30 million people will be covered very efficiently. $621 billion divided by 9 years is $69 billion per year, divided by 30 million people is $2300 per person per year. While that figure is too low because we won't be insuring all 30 million immediately, remember that 2011 U.S. health spending per capita was $8174.90. Any way you look at it, the newly insured will be costing far less per person than those currently in the insurance system.

There you have it. Forbes' most-read story of the day (with over 26,000 Facebook shares and 3400 tweets as I write this) is simply false. Between all the new taxes and the premiums from the newly insured, you can cover the total increase in health care spending. The typical, already insured family isn't going to see increases due to the rise in overall health care spending. You add 30 million new insured at a far lower cost than what we currently spend per person. And the editors didn't catch a blatant error on present value.

Cross-posted at Angry Bear.


  1. "nominal" is economics jargon
    If you are writing for a general audience, do NOT use this word, use "adjusted for inflation" or "not adjusted for inflation"
    you recieve an automatic half letter deduction, and another one for the typo I caught "So the he's hyping shock v"

    PS: if you think im snarky, how would you treat one of your students who turned in a paper with an exam
    Answer honestly

    1. Thanks for catching that typo! You are also right that "nominal" is jargon-y.

      I don't see anything snarky in your comment.

  2. I think that you could do a lot of good with these specific statistics that just came out from a larger national pol than Pew even conducted, by 3X. Additionally, the group that paid to have this study done, they're providing all of the raw demographic data files available for download for free.

  3. Excellent work, and a great layman's explanation of some very big numbers.
    Keep it up, real journalism is harder and harder to find nowadays..

  4. I'm sharing this information far and wide as a healthcare worker who has seen many go without even preventive care , in increasing amounts, over the last 30 plus years. Unless the good people of this nation start making our voices heard, the corporate puppets in office will continue to mislead the American people. Thank you for your continued efforts to keep the public informed of the truth Mr.Thomas !

  5. Would it not also be true that the additional health care spending on the newly-insured would replace, at least to some extent, the costs of health care for the uninsured being incurred now (such as in hospital emergency rooms, worse conditions due to lack of preventive care, etc.) which are ultimately being borne by taxpayers already?

  6. "Not only do two wrong not make a right, but..."


    1. I thought you were going to do the line from National Lampoon's "Radio Dinner" album, "Two wrongs don't make a right, but three do."

  7. The "middle class security" has not been reduced by the economic policy of the last 35 years. Their jobs, welfare and security have been primarily affected by technoligical advances (automation) and the transfer of much of this nation's manufacturing base---steel, electronics, clothing, furniture, toys,etc.,etc., to foreign countries due to union demands and world-wide disparity in labor costs. None of this has anything to do with economic policy, just economic reality.

    1. Policy has helped enable capital mobility, allowing the transfer of the manufacturing base. Capital mobility also helps drive policy. And changes in tax policy benefiting the 1% weren't forced on us by the market, as we can see from the diversity of national tax policies.