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March 21, 2010

Health Care Reform And The Deficit

Posted by tunesmith at 11:51 PM

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.

Health Care Bill Passes

Posted by tunesmith at 11:18 PM

A couple of months ago, I predicted what I thought would happen to the health care bill in the wake of Scott Brown's Senate victory in Massachusetts. My predictions were thankfully wrong about the ultimate outcome of the bill. They weren't as wrong as Barney Frank was, who weirdly pronounced health care completely dead (and really shook my faith in him as a leader), but they still underestimated reality.

I have to remember a point that I often make to other people. Those of us that try to be fact-oriented are not really used to being on offense. For those of us who really started paying attention to politics during the birth of the internet age, this is our first experience at really paying close attention at how legislation is done.

And the amount of times something can die and come back to life is mind-numbing. If this were a movie, it would have an awful plot. If our hero died that many times, we'd be considering walking out of the theater, telling him to just die already. Maybe it's satisfying in a pulp fiction sort of way, like in the old radio serials where our hero faces certain death every fifteen minutes.

Nevertheless, it lived, and now it appears immortal. What matters isn't so much a matter of the policy details. It's that an entire frame has been demolished by a new frame. The old frame was that universal health care was a McGuffin, something that would never happen, from being uniquely incompatible with America. The old frame was that an attempt would come along every twenty years, and then be left dormant. And the old frame was that health insurance was something that people would get if they were self-reliant enough to pay for it, or have the kind of employment that would give it to them.

Now the frame is that health coverage is the rule, and not the exception. That people can't have their life ruined if they get sick and then recover. That the nation has a self-interest in looking after the health of its population. This is going to take a while to sink into the nation's psyche, but it's going to have all sorts of butterfly effects. People are going to start arguing for more efficient care, and the government isn't going to be able to abstain. The government will become more efficient, and will be able to use its resource more efficiently in other areas. The population will become healthier as they worry less about being screwed by their insurance policies. They population will become more mobile in terms of switching jobs, and more entrepreneurial as they find less barrier to forming their own businesses.

President Obama said tonight, "This is what change looks like." He was referring to how change often has to be incremental. But it also applies to our incremental understanding. We only have a glimmering of an idea of what kind of change this will create. We'll know a lot more later.

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