The President repeats an important math error

In Grand Junction, Colorado last Saturday, the President repeated an arithmetic error he made earlier in the week:

Now, what I’ve proposed is going to cost roughly $900 billion — $800 billion to $900 billion. That’s a lot of money. Keep in mind it’s over 10 years. So when you hear some of these figures thrown out there, this is not per year, this is over 10 years. So let’s assume it’s about $80 billion a year. It turns out that about two-thirds of that could be paid for by eliminating waste in the existing system.

So I’ll give you — let me give you one particular example. We right now provide $177 billion over 10 years — or about $17 billion, $18 billion a year — to insurance companies in the forms of subsidies for something called Medicare Advantage where they basically run the Medicare program that everybody else has, except they get an extra bunch of money that they make a big profit off of. And there’s no proof, no evidence at all that seniors are better off using Medicare Advantage than regular Medicare. If we could save that $18 billion a year, that is money that we can use to help people who right now need some help.

Similarly, in Belgrade, Montana, he said:

Now, what I’ve identified, and most of the committees have identified and agreed to, including Max Baucus’s committee, is that there — overall this bill will cost — let’s say it costs $800 billion to $900 billion. That’s a lot of money. That’s a lot of money. That’s over 10 years, though, all right? So that’s about $90 billion — $80 billion to $90 billion a year.

And in Portsmouth, New Hampshire, the President said:

So it’s about a hundred billion dollars a year to cover everybody and to implement some of the insurance reforms that we’re talked about.

Each of these statements is incorrect.

CBO estimates the “effects on the deficit of insurance coverage provisions” in the House bill, H.R. 3200, to be $1,042 billion over a ten year period. (See page 2 of the estimate.) The $800B – $900B figure cited by the President may be his expectation of the still-private Baucus bill.

But the program is in effect for only about five of these ten years. In the House bill, the new coverage provision begins in year 4 (2013) and phase up to full effect only in year 6 (2015). To calculate the per-year cost, therefore, you should divide by roughly six, rather than by 10.

In addition, the new spending grows really fast, so the spending in year 10 (2019) is much bigger than in year six. CBO estimates the new coverage provisions would cost $202 B in 2019, rather than the President’s $80 B (last Saturday) or $100 B (last Thursday) annual cost figures.

Even if you knock 20% off that estimate (assuming the still-private Baucus bill is 20% less expensive than the House bill), you’re looking at a $160 B annual cost. In another document CBO estimated this 2019 cost would grow faster than 8% per year in the long run.

So the President is off by at least a factor of two.

This becomes particularly misleading when the President compares his $80 B annual new cost to $17-$18 B in savings from Medicare Advantage. The listener hears that MA savings can offset more than 20% of the cost, when in reality it’s more like 10%.

Is this nitpicking? Why is it important?

  • We’re discussing tens and hundreds of billions of dollars here. Each billion matters.
  • The aggregate cost of the new entitlement is the most important fiscal fact in this policy proposal.
  • One of the hardest elements of passing the bill is getting agreement on how to offset the proposed new spending. The President’s statements make it appear that this problem is easier to solve than in reality.
  • Everything the President says should be accurate and verifiable.
  • This is a repeated mistake. That should never happen.

Someone on the White House staff needs to tell the President not to use this arithmetic. And it’s disappointing that it appears no one in the White House press corps has asked about this basic factual error.

By | 2017-05-23T19:06:36+00:00 Thursday, 20 August 2009|