Kerry's Health Plan May Need Surgery

A new study puts the cost twice what the candidate estimates. If these numbers hold, the Democrat may have to trim some features

By Howard Gleckman

The domestic centerpiece of Senator John Kerry's Presidential campaign is an ambitious plan to reduce sharply the number of Americans without health insurance. From the beginning, the Democrat's proposal has come under fire from the Bush campaign for being unaffordable. Now a new independent study suggests that when it comes to health care, Kerry may have far more will than wallet.

Research by Lewin Group, a Falls Church (Va.) consultancy, confirms that Kerry would, as promised, provide insurance coverage for about 25 million Americans who are now uninsured -- millions more than President Bush. But the plan could cost far more than Kerry says. Relying on the estimates of Emory University health economist Kenneth E. Thorpe, the senator projected that his plan would cost about $650 billion from 2005-14. Thorpe figured that Kerry would spend about $950 billion on tax breaks, subsidies for employers that offer health coverage, and direct aid to low-income adults and kids. He also figured Kerry would achieve about $300 billion in offsetting cost savings.

"IN THE BALLPARK."

  But Lewin figures the Kerry plan would be substantially more costly. That report, released on Sept. 21, projects it would come in at over $1.2 trillion -- $1.6 trillion in new spending and tax cuts, and about $400 billion in offsetting savings. Those numbers, which roughly track a recent study by the conservative American Enterprise Institute (AEI), could be a big problem for Kerry.

Until now, he has insisted he could pay for his health plan by rolling back the Bush tax cuts for those making more than $200,000 a year. But doing so would produce about $860 billion, not nearly enough to foot this bill -- let alone slash the deficit in half, as he has also promised.

No one claims that the Lewin estimates are the last word. Thorpe says the consultants misunderstood key elements of the proposals. And he also notes that while he projected costs through 2014, Lewin projects them through 2015. Nonetheless, many independent analysts figure that the true cost of the Kerry plan will come in higher than the candidate claims. The Lewin report is "in the ballpark," says Jeff Lemieux, president of centrists.org, a nonpartisan Washington think tank. "We can think of it as a trillion-dollar plan."

A LOWBALL FROM BUSH.

  The Lewin report is by no means all bad for Kerry. It confirms that he would indeed cover a big chunk of the uninsured. Thorpe figured the Democrat would pick up 28 million of the 45 million who are now without coverage, AEI estimated 27.3 million, and Lewin projects 25 million. Bush would cover between 2 million and 8 million, depending on whose estimate you believe. The Lewin study also credits Kerry with lowering average family health-care costs by $450 a year, while Bush's plan would actually raise costs slightly.

And while the consulting firm figures the cost of Kerry's plan is twice what the Democrat claims, it also calculates that Bush has, umm, misunderestimated the cost of his plan as well. Lewin figures its price tag would be $227 billion instead of $90 billion that the President claims.

Kerry can scale back some of his proposals to make it more affordable. For instance, he would have Washington pick up the costs for expanding state-run health insurance for poor adults and children. Lewin figures that would result in a $343 billion windfall to states -- much more than Kerry intends. If Lewin is right, Kerry could adjust his plan accordingly. Lewin also figures Kerry's scheme to subsidize employer premiums by about 10% would cost a staggering $700 billion -- far more than AEI and Thorpe figure. If Lewin is correct, that part of the plan will also have to be trimmed.

MAJOR DISCONNECT.

  Aides to Kerry say slashing the deficit remains a top priority and that if his health plan is more costly than advertised, he'll scale it back. But health reform is the Democrat's top domestic priority, and rolling it back won't be easy.

The Lewin study offers just a taste of what Kerry can expect if he's elected President: a major disconnect between his campaign promises and painful fiscal reality.

Gleckman is a senior correspondent in BusinessWeek's Washington bureau

Edited by Patricia O'Connell