It has been widely reported in the news by Sen. Obama’s campaign advisors and others that his health proposal to achieve near-universal coverage would require between $50 billion to $65 billion per year in new federal funds. However, that is only about one-third of the likely cost. This is because Obama is relying on several cost-saving measures that his advisors estimate will reduce health care expenditure by $125 billion to $200 billion per year. That would be a great achievement if it actually worked — which it won’t.

How would Obama pay for his health proposal? Roughly $65 billion would be raised by gouging the rich (i.e. restoring the top two income tax brackets and capital gains tax rates to Clinton-era levels and reverting to former the estate tax law with a higher $7 million exemption).

 The second way Obama would pay for his plan is through improved efficiency by implementing health information technology (HIT) and chronic disease management (CDM). Upon closer inspection, the Obama Plan largely relies on phantom savings that are unlikely to materialize.

 Virtually everyone (Republicans and Democrats alike) seems to agree HIT and increased CDM would be benefit patients by improving quality of care. However, neither HIT nor CDM are likely to actual save any money. A recent CBO report examined the literature for the potential costs and benefits of HIT. It found that HIT lowers costs for some entities while increasing costs for others. The bottom line is that very little of the savings will be realized by health insurers (or consumers) although there are other non-monetary benefits. The same is true of CDM. An article in Health Affairs profiled Kaiser Permanente’s attempts to institute broad population disease management. Kaiser found CDM improves health but also tends to slightly increase (not decrease) medical spending. A study by RAND came to a similar conclusion that some CDM actually increases expenditure. Health and Human Services looked at disease management in its managed care programs and found over all costs did not decline.