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March 21, 2010

Health Care Reform And The Deficit

Paul Ryan is a republican congressman that has become something of a hero on the right, as he actually pays attention to wonky details and budgetary figures.

After the reconciliation bill was announced, Ryan sent a letter to the CBO asking for some alternative calculations based off of several different assumptions. Here is the CBO's response.

Ryan's objection is that he believes the Democrats are indulging in some budgetary trickery. I don't have a very fine grasp of the details here, but the gist is that the CBO has agreed with Congress on a particular method of projecting our budget forward. This method bases its assumptions off of legislation that is currently on the books, so it is "technically" accurate. However, Congress has a long history of tweaking some of the same laws every year to change its spending and revenue, and there's every reason to believe this history will continue. These tweaks are not part of the CBO's projections, and so it can be argued that the CBO's projections are not realistically accurate.

This may sound familiar. The Bush administration was infamous for creating budgets each year that didn't include any war cost, and then issuing supplementary budget requests for war funding. In addition, Congress had a long history of passing a yearly fix on the Alternative Minimum Tax - the reason they wouldn't reform it permanently is that it would make the budget figures look too horrible. President Obama was against both of these practices, and sought to normalize the numbers so the yearly budgets would be more realistically accurate, so it is reasonable to want to do the same with the Health Care Reform bill.

The problem is with Medicare. The story is that long ago, Congress passed Medicare reform in an attempt to tamp down rising health care costs. Again, without having a deep grasp of the policy details, the intent was to put a cap on Medicare payments that would adjust each year. The thought was that the cap would help keep health care costs from rising. I imagine what really happened was that since the cap only applied to Medicare spending, and not health care spending as a whole, it didn't have a chance of working - health care costs started rising far too fast for the Medicare cap. As a result, in April 2010, Medicare's payment rates for physicians' services would be reduced by 21% if Congress doesn't step in with its yearly fix. I think this is what they call the "doc fix".

There is a bill that reforms this, which would change the calculations of the health care reform bill - the Medicare Physicians Payment Reform Act of 2009 (H.R. 3961), according to Paul Ryan. Right now the health care bill is projected to decrease the deficit by around $140 billion in the first ten years. If this "doc fix" bill were passed in conjunction with the health care reform bill, the deficit would instead increase over the first decade, by about $60 billion. This is because the "doc fix" bill by itself would cost around $200 billion.

My own sense is that this isn't really an issue, for two reasons:

  1. In both cases, the long-term impact is that the deficit will be increased. It still bends the cost curve down.
  2. Barack Obama's requirement was that it doesn't increase the deficit. But he was obviously referring to the CBO's projections, and his team knows how the CBO projects things. In other words, his unit of measurement was the same as CBO's - it's not accurate to say that since the bill doesn't really decrease the deficit in the first decade, that it doesn't meet Obama's standards. That'd be like me saying a product of $9.99 is less than $10, and then you saying I'm wrong because it's twelve Euros.

Ryan then manages to put together a scenario showing that even the long-term deficit would increase if some other assumptions are changed, but these other assumptions don't hold water in my view. Unfortunately, it is difficult to tell which of his four assumptions really drive the numbers towards deficit expansion.

His most dubious assumption is the one on the excise tax - he assumes it would never take effect. The problem with this assumption is that it is designed to never take effect, by holding health care costs down, which would still be good for the deficit. The excise tax is different than the Medicare problem described above, because it applies to all health care spending, and because it is tied in to the competitive market of the health insurance exchange.

Ryan's assumptions also overlooking one huge point - there are several other cost controls in the bill that have a high likelihood of positively impacting the deficit figures, but cannot be projected by the CBO. Because of that, the CBO assumes that none of them will work at all, when some of them will undoubtedly meet with some success. Ultimately, by trying out different assumptions to get worse-sounding numbers, Ryan is doing little more than trying to fit the data to his own conclusions.

Posted by tunesmith at March 21, 2010 11:51 PM

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