New poverty guidelines could lead to higher than predicted health care costs

The Census Bureau reported Tuesday that 15.8 percent of Americans lived in poverty last year, using an alternative method to analyze their numbers provided by the National Academy of Sciences.  This is significantly higher than the 13.2 percent official poverty rate the agency released last month. Since a great deal of the estimated cost of health care reform relies on the old data, what do these numbers have to say about the final cost of the bill?

For starters, this places 7 million more Americans below the poverty line.  18.7% of these are elderly, and will receive Medicare.  The remaining 5.69 million are non elderly.  Under the Senate Finance Bill, anyone earning 133% above the poverty line or below qualifies for Medicaid.  Using the new numbers, this means that at the very least, 5.69 million more people will be eligible to receive Medicaid than Congressional Democrats and the CBO are accounting for.

The CBO estimates, “there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law.”  But the CBO estimate was based on the old census numbers.  If Congress adopts the new methods for rating poverty, that number will increase by at least 5.69 million people. From the report [pdf]:

On a preliminary basis, CBO and JCT estimate that the proposal’s specifications affecting health insurance coverage would result in a net increase in federal deficits of $518 billion over fiscal years 2010 through 2019. That estimate primarily reflects $345 billion in additional federal outlays for Medicaid and CHIP and $461 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending.

We can assume that an increase of 5.69 million people to Medicaid, plus an increase in subsidies to countless others, will significantly raise the cost of the final bill far beyond current CBO estimates.  In increased Medicaid costs alone could amount to nearly $50 billion dollars, and the increase in subsidy payments would be astronomical, with payments going out to thousands more households than currently projected.  High unemployment rates will only exacerbate this trend.

Under the current guidelines:

• Poverty level: $22,050 for a family of four.
• 300% of poverty level: $66,150 for a family of four.
• 400% of FPL: $88,200 for a family of four.

Under the new guidelines:

• Poverty level: $24,755 for a family of four.
• 300% of poverty level: $74,265 for a family of four.
• 400% of FPL: $99,020 for a family of four.

It would be the simplest thing in the world for Congress to change its poverty guidelines to reflect the National Academy of Sciences numbers in the future, effectively extending Medicaid to millions more people, and placing a much greater burden on faltering state budgets.  And Democrats wouldn’t do this until after health reform had passed, because adopting these figures now would have major effects on their cost estimates.  According to the Associated Press:

The Census Bureau said it expedited release of the alternative numbers for this month because of the interest expressed by lawmakers and the Obama administration in seeing a fuller range of numbers. Legislation pending in Congress would mandate a switch to the revised formula, although the White House could choose to act on its own.

This is fairly significant.  If Congress passes health reform legislation based on old methods of defining poverty, then changes those methods, in effect they will have completely misrepresented the actual costs of reform.  The $81 billion dollars purportedly saved under the Baucus bill will quickly disappear.

This is not to say that health care reform is made any less urgent by this data.  Quite the contrary.  It’s only to show that cost estimates may not reflect the facts on the ground.

See also: Dave Schuler on the various myths of reducing health care costs.

Update.

I should add that I agree with this new definition of poverty.  It’s much more accurate, and takes many more actual real-life conditions into account – like rising health care costs.  I also continue to support health care reform, but I think our legislators should be honest about its actual cost.  And if they’re really savvy, they should think about adding in Ron Wyden’s Free Choice proposal, which could have a cost-bending effect on all of this, possibly making this a moot point.

(Photo via Daylife)