Friday, January 8, 2010

Dueling cost forecasts

A new cost forecast by Richard Foster, Chief Actuary of CMS is in the news, this one regarding the health insurance reform bill. This forecast, like his sobering projection of the costs of the prescription drug benefit expansion of Medicare, is less optimistic than its counterpart out of CBO.

One thing that's been puzzling me is how a one-time increase in the tax rate applied to employer-paid health insurance premia could create a reduction in the rate of growth of health spending rather than just a level effect. But given some of the literature I've seen from the union I belong to, which argues that the tax on "Cadillac plans" will slowly grow to cover more individuals, maybe the secret is indeed that the effective tax rate will be rising over time. If that's true, it doesn't suggest cost savings can be long-lived.

Maybe I'm missing the point entirely: rates of growth don't change, but levels of tax revenues and thus fiscal sustainability do.