Obama health plan to cost $75 billion: analysis

WASHINGTON (Reuters) - President-elect Barack Obama’s plans to overhaul the U.S. healthcare system would cost the federal government $75 billion the first year but would provide health insurance for 95 percent of Americans, consulting firm PriceWaterhouseCoopers said on Wednesday.

This works out to about $2,500 per newly insured person, the firm said in a report.

“The plan would increase to $1 trillion cumulatively by 2018 or approximately $130 billion per year,” the report said.

While the plan would extend health insurance to two-thirds of the 47 million people who currently lack it, the overhaul may worsen some problems, such as a shortage of primary care doctors, the analysis found.

“Unless costs are cut, growing health care costs will increase the costs of Obama’s plan dramatically over time and reduce the effectiveness of mandates. This could make the federal costs unsustainably high,” the report said.

“Because of the deficit and financial crisis, there’s unlikely to be any new federal money available, so health reform may require reallocation of dollars already in the health system.”

Dr. David Levy, health industry specialist at the consulting firm, said the current financial crisis does not outweigh the need for healthcare reform.

“We think this is a moment in time, with ... Obama’s election, when in fact we could see not a stalling of healthcare reform but a potential acceleration of healthcare reform,” he told a telephone briefing.

“Maybe this crisis has helped unleash more market forces to drive this system toward more value for patients,” he added.

President-elect Senator Barack Obama speaks on the phone in a Chicago office, November 6, 2008. REUTERS/Obama Campaign/Handout


Some costs could be recovered from payouts made to hospitals that care for the uninsured, the analysis found. It found that $25 billion, or about a third of the cost of Obama’s plan, could come from existing payments to hospitals for uncompensated care.

“Obama’s proposal is likely to increase revenues but lower margins for providers, pharmaceutical companies and health plans that increasingly depend on government payment,” the report said.

While Obama’s proposals would add costs up front, they would provide savings over the long term, especially by stressing prevention and wellness, said Jack Rodgers of the group’s health policy economics practice.

“PwC estimates that ... it would reduce national health spending by 9 percent by 2025 ... $680 billion, which is a pretty big deal,” Rodgers said.

PwC’s Michael Thompson said insurers could benefit. “I think if there are more insured ... that means there’s going to be more insurance (and) more premiums for insurers,” he said.

Obama has proposed a national insurance “exchange” with what his website describes as a “range of private insurance options.” “This national health insurance exchange could offer a new and different way to compete in the marketplace,” Thompson said.

Todd Evans of PwC said the drug industry was changing anyway, with a move away from blockbuster and “me-too” drugs that replicate existing therapeutic approaches.

“It appears there will be industry-level incentives for personalized medicine research, developments funded through academia and (the National Institutes of Health),” Evans said.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, unveiled his own healthcare reform plan on Wednesday that resembles Obama’s but would require all Americans to have health insurance. Unions and consumers groups quickly praised the proposals.

Editing by Will Dunham and Eric Beech