A History of Cost Overruns Should Squash Government Run Healthcare

Why on earth would anyone believe that the federal government running healthcare will cure the high cost problem in the industry?  I mean what has government ever run that even works well?  Our monetary system is a mess.  The economy is in the toilet.  Our schools are subpar.  Welfare programs have not alleviated poverty.  And our prisons are bulging at the seams filled with too many non-violent drug offenders. 

But, here we are debating whether Congress and the Administration should totally control one-sixth of our economy in an effort to lower costs and provide universal healthcare coverage for America.  The proposition to me is ridiculous – if only folks would look at the federal government’s track record when it comes to programs and cost overruns.

There have been thousands of examples through the years and the following is by no means the most egregious.  In the realm of transportation, cost overruns are an automatic with federally funded projects.  Take the “mixing bowl” highway interchange project in Springfield, Virginia for instance.  It was estimated by state officials to cost $241 million.  At its completion, the project ended up costing $676 million.  Of course, the most notorious transportation cost overrun was Boston’s “Big Dig”.  Initially estimated to cost a mere $2.6 billion the project’s final cost was $14.6 billion.

Uncle Sam’s fiduciary experiences, when it comes to energy projects, are not much better.  Take the Clinch River Breeder Reactor project of the 1970s for instance.  The project experimented with nuclear fission and was estimated by the Atomic Energy Commission to cost $400 million.  Throughout the decade its cost estimates steadily increased to $4 billion.  Eventually the program was scraped, but not before taxpayers dished out $1.7 billion.

Without question, cost overruns in Social Security are legendary.  The old age pension system has required many reforms in its 74 year history because of insolvency.  When it was established in 1935, its financing required only a one percent of wages contribution from the employee and a matching one percent from the employer.  Over the years, reform has eventually raised those contribution levels to 6.2 percent respectively.  The most significant amendments to the system came in 1983 when an earnings penalty for wages above a certain level, a delay in the cost of living allowance for six months, reduced benefits for those that retire early, and a higher retirement age were enacted.  All were measures to sure up the insolvent trust fund used to pay benefits.  Today, the outlook is even bleaker for Social Security.  Faced with millions of baby boomers retiring and a much smaller workforce to finance the system, it will be almost impossible for Uncle Sam to come with an estimated $45 trillion in future unfunded liabilities.

Finally, and most germane to why the federal government should stay out of healthcare is because it already has a history of massive cost overruns in the industry.  When Medicare Part A was passed in 1965, government experts projected costs to rise to $9 billion by 1990.  Total costs actually reached $67 billion.  In 1987, Medicaid added a special hospital subsidy to its coverage which was projected to cost $100 million.  By 1992, costs stood at $11 billion per year.  Now, I understand that things happen beyond the government’s control, but these overruns are not small, indeed they are huge.

Given this dismal historical record of cost overruns, why anyone would trust politicians when they announce cost estimates for government proposals is mindboggling.  As long as our “leaders” can continue to scam the public and rely on the Federal Reserve to print money to cover their excesses, their behavior will not change.  And now they are proposing to take control of an industry which represents one-sixth of our economy and one that is literally vital to the health of you and your family.  Of course, given the size of the industry, if the politician’s succeed at taking over healthcare the cost overruns will not be in the millions or even billions of dollars.  Cost overruns will be in the trillions of dollars.

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One Response to A History of Cost Overruns Should Squash Government Run Healthcare

  1. Interesting post. There are a couple of assumptions in lowering the cost by allowing interstate competition. First state mandates have to be removed. Will they? What about premium taxes? (3-4% of the admninistrative difference often quoted between the VA and private insurance is due to premium taxes)

    But here is the underlying issue:

    At the start, there might be a slowing of health care costs (that’s why they only project for the first 10 years). Once you wring out some of the administrative waste, promote competition, etc. you get back to the core issue — health care trend is 2-3 times that of general inflation or revenue and wage growth.

    Unit price increases are about 1/3 of the increase, increasing utilizatin if the other 2/3. We can do more to help people and they are living longer.

    Controlling health care costs, keeping innovations and medical advances coming, avoiding rationing of care for the elderly and not imposing wage and price controls may be objectives that are not attainable.

    Follow the debate and other health care delivery issues at http://www.ilovebenefits.wordpress.com

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