The American Spectator

Steven Parente is an economist at the University of Minnesota and a principal of HSI  Network, a health economics research firm. He wrote a short article for the Manhattan Institute’s City Journal in which he estimates the real cost of the House and senate bills currently on the table would be about double what CBO estimates. He writes, “The CBO is actually being kind to the would-be reformers. Its analysis likely understates—by at least $1 trillion—the true costs of expanding health coverage as current Democratic legislation contemplates.”

How can that be? Parente explains, “The discrepancies between our estimates and CBO’s stem from our different assumptions about a key issue.”  CBO estimates only 11 million people would switch from private coverage to a “public option,” while Parente (and other researchers such as the Urban Institute) estimate it would be more like 40 million.

He further explains, “Why the difference in these estimates? We believe that we have better data on this issue than the CBO, which uses simulation models of health-insurance plans based on much older health-plan data—typically from 2001 or even 2000. Our estimates are grounded in 2006 commercial-insurance data to which the CBO doesn’t have access.”

The market and the available data have changed significantly between 2001 and 2006, largely because of the advent of Health Savings Accounts and other forms of Consumer Driven Health. We now know a lot more about how people respond to lower cost coverage options than we did in 2001.

Parente concedes that both estimates are just that – estimates – and could be wrong. However, “If the House or Senate bill passes, we should know who’s right by 2014–15, shortly after the bills take effect and costs start to explode.”