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.

21 thoughts on “The President repeats an important math error”

  1. Additional mistakes coming back to hurt the President's arguments about government run programs and government making cost cuts…

    Using the post office as an example of a government run "business" which has market competitors (FedEx and UPS) has opened the door for criticism on how effectively the government can run a business without requiring taxpayer subsidy.

    At the beginning of the administration’s budgeting process, the President asked his administration to find $100 million of savings. The last news on the effort was that the savings could not be found (even though $100 million is a fraction of a percent of the overall budgeted spending, but still a big number).

  2. Keith:

    Please take a look at HR 3200, page 65, Sec 164. It's called "Reinsurance". But when it comes time to define reinsurance, suddenly the term changes to "reimbursement". It then goes on to detail how "eligible" plans are to submit claims between $15 and $90k to be reimbursed by the government. Nothing about "reinsurance".
    The section sets up a $10 BILLION fund for "eligible" RETIREE health plans for employees 55 – 65.— "Pre Medicare" plans. This caught my attention because it's one of the FEW areas in the bill with specific funding.

    I believe this is a political payoff to the unions. Though there are some private firms that would technically qualify, why do I think that is not who the Dems intend to favor? And most private firms don't have pre-65 retirement health plans.

    My suspicions were raised further when John Sweeney wrote a letter to AFL CIO member telling them the union has 4 key issues that must be included in any health care plan. One of the four was:

    "…relief for company/union funds providing pre-Medicare RETIREE coverage…"

    Perhaps not proof positive, but I'm not a big believer in coincidence, either. I'm believe this is a transfer of $10B in taxpayers' money to the Dems' union buddies.

    Sweeney letter: at bottom of article—see 3rd bullet point for above quote (begins "Leadership meetings….")

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  4. Bear in mind that most of his most ardent supporters think that the concept of a tax refund given to someone who has paid no taxes makes some kind of sense.

    But then most of his most ardent supporters' lips move when they read stop signs.

  5. Yeah, and the right-wing is making up bulls&^t about death panels and pulling the plug on Grandma. I don't see you real exorcised about THAT.

    1. "Yeah, and the right*wing is making up bulls&^t about death panels and pulling the plug on Grandma. I don't see you real exorcised about THAT."

      Sarah Palin used the term "death panel", even she (and everybody else) is backing away from the terminology, the concept remains valid. It may have escaped your notice, but she was a private citizen when she said that, bo is the president and he's lying to you. It obviously doesn't bother you that your president is lying to you, and for some reason I can't shake the feeling that it has something to do with the word "exorcised".

  6. Ummm, as you say in your post: "the 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."

    If the CBO says that is the cost over 10 years, why is it an egregious error for Obama to say the exact same thing? Federal officials of both parties have crafted legislation to make full use of that mandated horizon.

    As long as we're going for accuracy, why not include the effects of inflation? The value of those dollars in years four through ten is going to be lower than today.

    Note too that on the same page 2 of the CBO report they state that: "enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion." They also say that it would insure an additional 37 million people.

    We're spending $100 billion a year in Iraq and Afghanistan and that is pure deficit spending. Bush's trillion dollar tax cut would have been twice that without various sunset clauses and calendar gimmicks. Again, it went straight to the deficit – and we can see the healthy growth that generated…

    So roll tax rates back to where they were in 2000 or quit nation-building in the middle east or cut the waste out of our $520 billion a year defense budget (that's exclusive of Iraq and Afghanistan) and voila! affordable health care for all with no net budget impact.

    1. Jim, did you read the article? President Obama didn't commit a math error by cited CBO figures. President Obama committed a math error by taking the projected aggregate costs and converting those figures (incorrectly) to an annual cost.

  7. So the President wants to kill Medicare Advantage, a hugely popular, very successful market-oriented program in the same breath that he says if you like your current coverage you can keep it? Hmmmm…

  8. Keep in mind that Obama's original, stated reason for healthcare reform was to reduce the devastating impact healthcare poses to the future federal budget. Even if his healthcare plan were revenue-neutral, it would still leave us in a fiscal situation that he said was intolerable. If it actually increases the deficit and makes that situation worse, why would he still be arguing for it?

    Clearly, he lied when he said that cost control was his main goal.

  9. I want to know the following . It is my understanding that the Federal Government cannot compete in a business with tax payers money . If the Federal Government goes into the Insurance business as they claim they will do with the public option , they will be in direct competition with the private insurance companies . According to my understanding of the law , this would be an illegal step the government is taking on . The government can drive out any private company due to the fact that the government can print money, and cam get continous support from congress as the Post Office , Amtrak , and now some of the Banks AIG, Freddy Mac etc . Please give me the answer mb3217

  10. How is the "governement plan " going to deal with state insurance regulations? States can sidestep Interstate commerce clause and limit insuranThis more than anything has caused limited insurance product competition. Additionally, how is the governement plan going to reconcile with the precendent set by the Microsoft anti-trust prosecutions? The theory set down with Microsoft wasn't what was good for conusmers now but that a natural monopoly will have a chilling effect on future innovations and advancements, thus hurting consumers in the future. ce operations in their respective states. A government run plan could easily become a monopoly and considering the countries with national healthcare systems don't innovate much, consumers would be hurt in the futhure. The state regulations will be very problematic in the short term but I can see the Microsoft anti trust issue a longer term corollary that siezes up a government plan. It won't be very hard to imagine innovation destruction in a government healthcare plan and when it was a driving force with Microsoft in an industry with far less emperical oberservations as government run healthcare.

  11. Obama isn't interested in getting numbers right. This is the same guy who accused surgeons of hacking off limbs for reimbursements of 30,000, 40,000, 50,000 dollars. (The real reimbursement is in the $700-$1,000 dollar range.

    I really have to question why we would want someone whose grasp of the current situation in medicine is this tenuous to lead a takeover of 16% of our economy.

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