Healthcare Bill Is a Budgetary Disaster

President Obama and his allies in Congress have argued throughout the healthcare debate that their plan would not only cover more people with insurance but would also cut the federal budget deficit, especially in the second ten-years after enactment.  They credit all of the provisions in the plan that “bend the cost-curve” for bringing this about.  To bolster their case, they point to the cost estimates produced by the Congressional Budget Office (CBO).

And, in fact, it is true that CBO’s most recent cost estimate for the bill (together with amendments expected to be cleared by the Senate this week) shows deficit reduction of $143 billion over ten years from its enactment, and CBO says there could be even more deficit reduction in the years 2020 to 2029. 

CBO’s Flawed Estimates

But CBO’s cost estimates are built on the legislative specifications Congress hands to it.  A close reading of what CBO has actually reported to Congress shows that the Democratic claim of large-scale deficit reduction from the health bill is built on budgetary gimmicks, sleight of hand and dubious assumptions.  When those are exposed and removed from the accounting, the health bill is quite plainly another unfinanced and fast-growing entitlement expansion.

All Deficit Reduction Vanishes

For starters, CBO’s tally doesn’t include more than $200 billion in additional spending for physician fees under the Medicare program which the President and Democratic leaders have endorsed.  This is the so-called “doc fix,” which would reverse a misguided cut that will be implemented unless addressed by Congress.  The White House absolutely wants to spend the money on full “doc fix.”  It’s in the President’s budget, and was in the original House version of the health bill.  But to pretend that their health plan costs “only” $1 trillion, they want to pass the “doc fix” separately.  That allows them to use all of the Medicare cuts in the health bill as offsets for the massive entitlement expansion they have pushed, even though everyone knows the physician fee problem needs fixing.  The President contends he shouldn’t have to pay for the “doc fix.”  But why not?  Never before did Congress move to add the cost of a permanent repeal of the current law cuts to the national debt.  But that is precisely what the President now wants to do.  When the cost of the “doc fix” is properly included in the accounting of the Democratic healthcare agenda, all of the claimed deficit reduction from the President’s health plan vanishes.

Then there’s the double-counting.  The Democratic health plan starts up yet another entitlement program, providing voluntary long-term care insurance. Enrollees have to pay premiums for a number of years before they qualify for any benefits.  Consequently, at startup, there’s a surplus of premium collections –$73 billion over ten years, according to CBO–because no one qualifies for the benefits yet.  The President and his team count this savings against the cost of the health reform bill even though the money will be needed very soon to pay out long-term-care insurance claims.  When this gimmick is taken out of the accounting, the President’s health proposal goes even deeper into the red.

Middle Class Hit

For months now, the President has pointed to the “Cadillac” tax on high-cost insurance plans to demonstrate his commitment to “bending the cost-curve.”  But his commitment was no match for union pressure.  In a last minute switch, the plan postpones this tax until 2018, well past the point when President Obama will have left office.  But once in place, the threshold used to determine what constitutes “high-cost” will rise only with the Consumer Price Index, beginning in 2020.  That means a very large segment of the middle class would get hit with the tax as the years passed.  The President has shown that he is unwilling to actually collect this tax on his own watch.  But he wants us to believe that we can count on a huge revenue jump over the long run because his successors will have more stomach for it than he does.

In Medicare, the administration likes to highlight so-called “delivery system reforms” the administration has touted.  In the main, these are extremely small-scale initiatives and pilot programs.  CBO says they will amount to virtually no savings.  The big Medicare cuts in the President’s plan come from across-the-board payment-rate reductions.  In particular, the President wants to cut the inflation update for hospitals, nursing homes and others by half a percentage point every year, in perpetuity.  On paper, this change produces huge long-run savings. But it does nothing to control the underlying cost of treating patients.  It just pays everyone less, without regard to patient need or quality of care.  The chief actuary of the program has said repeatedly that these cuts are completely unrealistic for these very reasons.  If implemented, he expects they would drive one in five facilities into serious financial distress.  And yet the White House wants us to believe these savings can be counted on to pay for the President’s massive entitlement promises.

And massive they are.  CBO says the coverage expansion provisions in the plan would cost about $200 billion by 2019, and that cost would rise 8% every year thereafter.

But even these estimates understate the true cost. The health bill would extend generous new insurance subsidies to low- and moderate-wage workers getting insurance through the new “exchanges.”  Workers in job-based plans would get no additional help.  That means two workers with identical incomes would be treated very differently.  Gene Steuerle of the Urban Institute has estimated that, in 2016, a worker with job-based coverage and a $60,000 income would get $4,500 less than someone with the same income but health insurance through the exchange.  This kind of inequitable treatment would never last:  one way or another, the entitlement would get extended to everyone in the targeted income range, sending the overall costs of the program soaring. 

The President started off last year by saying he wanted to pass genuine reform to slow the pace of rising costs.  But after a year of partisan political and legislative maneuvering, all that’s left is a massive entitlement expansion–one that will almost certainly get even more expensive with time as more people become eligible for it.  These new costs would get piled on top of the unreformed and unaffordable entitlements already on the books. 

The health bill is not the answer to rising federal budget deficits.  In fact, it’s a budgetary disaster in the making.


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