Huge Doubts Raised by CBO Review of Healthcare Costs

On Thursday morning, the Congressional Budget Office (CBO) was forced by Democratic news “leaks” to release a preliminary estimate of the fiscal impact of the Democrats’ health care “reform” package made up of the bill which passed the Senate combined with what the CBO had been told to expect will be in the House’s “reconciliation” package.  Later in the day, the actual reconciliation language was posted online.  It remains unclear whether the CBO will be allowed to update its estimate before a likely Sunday vote in the House.

House Majority Whip James Clyburn (D-SC) was “giddy” when the CBO announced that the measure would reduce the budget deficit by $130 billion over the first ten years and by $1.2 trillion over the second decade.  But the real source of Clyburn’s giddiness is the mind-altering smoke and mirrors surrounding the revenue and “savings” provisions of ObamaCare.  In short, much of the savings and tax revenue which Democrats are counting on to fund their government takeover of health care will never be realized.

The CBO report contains a dozen line items which purport to show savings to the government of $10 billion or more. The majority of these – and the vast majority of the dollars they represent – require, to quote another prominent Democrat “a willing suspension of disbelief” to read without a giggle.

Here are a few of the biggest provisions which will likely never reap even a substantial fraction of their projected savings:  (All numbers are for the ten-year period from 2010-2019)

$38.1 billion in cuts to Medicaid prescription drug coverage.  In a world where many Americans are now used to government subsidies for or outright purchase of their prescription drugs, chances are slim that government will cut spending on medicine for the poor.

$14 billion in cuts to Medicaid Disproportionate Share Hospital (DSH) payments and $22 billion for Medicare DSH payments.  These programs pay hospitals which have a high percentage of uncompensated care, i.e. medical treatment they provide for which they are not paid.  The theory is that wider coverage will lessen the need for these payments.  However, since most uncompensated care is concentrated in areas with low-incomes and illegal aliens, these cuts would substantially affect already financially stressed hospitals in politically powerful states like California and Illinois.  The specter of hospital closures will cause Congress to block these cuts.

$21 billion in eliminating 2014 funding for the Medicare Improvement Fund.  The Fund has been used to support Medicare payment cuts to doctors.  If there is one thing that we know from the history of Medicare, it is that Congress never allows mandatory cuts to doctors to take effect.

$40 billion in payment adjustments for Home Health Care.  Beyond the fact that politicians will see images of Granny and her walker from interests who want to stop these cuts, the legislation itself shows the direction that socialized medicine must inevitably go: It instructs government not only to determine which services are “under- or over-valued” but also suggests different payment amounts based on whether a provider is for-profit or non-profit – precisely the sort of politicization of health care which Americans want to avoid.

If those provisions represent smoke, the next two are a forest fire of never-to-happen “savings”:

$130 billion in cuts to Medicare Advantage, the program which allows people to use private health insurance plans under Medicare.  Many of these plans offer benefits not available under standard Medicare.  A 2007 survey showed Medicare Advantage to be the highest-rated part of Medicare by people who participate.  While Democrats in Congress might want to attack Medicare Advantage as part of their overall assault on private health insurance, the idea that Congress under the control of either party would allow these cuts is not credible.  Perhaps that’s why, like almost all of the cuts in the Democrats plan, the cuts are not fully phased in until after the 2012 election.

$156 billion in cuts to Medicare payments based on productivity gains.  The government will look at productivity gains across the economy, assume that the health care industry should have increased productivity at the same rate, and cut payments to most providers accordingly.  Cuts would hit hospitals, ambulance services, laboratory services, medical equipment, and more.   This provision more than any other shows the Democrats’ utter lack of understanding of health care.  The Centers for Medicare and Medicaid Services (CMS) is already wary: “it is doubtful that many (providers) could improve their own productivity to the degree achieved by the economy at large.” If a patient’s life is saved because a new test is more expensive than the old test, how will that patient and her family feel about that evil drop in measured productivity?  The American Hospital Association is already lobbying to minimize these cuts and sunset the productivity adjustment.

Regarding the Democrats’ so-called savings which fund ObamaCare, the Chief Actuary of CMS put it subtly: “the longer-term viability of the Medicare reductions is doubtful.”

The revenue side of “reform” is no better.  Democrats continue the dishonest counting of $70 billion in premiums collected for CLASS Act (long-term care insurance) as deficit reduction even though that money and more will be due to beneficiaries in later years.

And then there are taxes. The so-called “Cadillac Plan” tax which is opposed by Big Labor is delayed until 2018, which is to say delayed forever because no future Congress will allow it.  The means the House must look elsewhere to replace the $150 billion the Senate bill anticipated from that tax.  Pelosi has managed to come up with the most economically destructive answer possible: the imposition of a 3.8% surtax on investment income for families with joint incomes over $250,000 and on estates.  The provision, essentially a massive increase in capital gains and dividend taxes will hamper capital formation and business investment and cost tens or hundreds of thousands of American jobs.  The package also contains the Medical Device tax which will increase the prices of everything from defibrillators to x-ray machines, cost the industry jobs, and increase the cost of health care for everyone.  And if you don’t buy insurance the government deems suitable, Pelosi’s bill increases the penalties on both citizens and employers from the prior version of the bill.

As if all this book-cooking and pocket-picking weren’t enough, the House also counts $20 billion in phantom savings from adding a government takeover of the student loan business to the government takeover of health care.

James Clyburn may be giddy. But, unfortunately for Democrats, Americans are not joining in whatever Clyburn is smoking.