In a speech before a joint session of Congress in September, the President said that his “preferred” package for health care finance reform legislation would carry a price tag of around $900 billion. He also said that he will not sign a bill that raises deficits.
On October 29, the Congressional Budget Office released a preliminary analisys of the Affordable Health Care for America Act (H.R. 3962). According to the summary in that analysis, “enacting H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the 2010-2019 period.” Sounds good, right? Let’s take a look.
On page 2, under Estimated Bugetary Impact of H.R. 3962:
According to CBO and JCT’s assessment, enacting H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the 2010-2019 period (see Table 1). In the subsequent decade, the collective effect of its provisions would probably be slight reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.
(Italics are mine)
That section goes on to summarize the costs and benefits of the bill. Total costs are estimated at $1,055 billion, partially offset “by $167 billion in collections of penalties paid by individuals and employers.” (Penalties for not maintaining the mandated health insurance coverage.) The projected net cost is $894 billion. So how do we get from a net cost of $894 billion to a surplus of $104 billion? “[S]pending changes, which the CBO estimates would save $426 billion, and receipts resulting from the income tax surcharge on high-income individuals and other provisions, which JCT and CBO estimate would increase federal revenues by $572 billion over that period.”
So the President and Congress weren’t entirely truthful when they said that they’re going to pay for this program by cutting waste, fraud, and abuse. They’re going to do what politicians always do: raise taxes and hope for the best. Oh, and they’re going to force employers to either offer health insurance coverage or pay a penalty equal to eight percent of their payroll. What used to be an incentive–an added benefit of employment–has now become a federal mandate. If employers were smart they’d just pay the 8% penalty. That has to be less expensive than the health insurance plans most of them provide.
What the press, the White House, and members of Congress won’t tell you about is what else the CBO report says. For example, under Effect of H.R. 3962 on Discretionary Costs, the report says:
CBO has not completed a comprehensive estimate of the discretionary costs that would be associated with H.R. 3962. Total costs would include those arising from the effects of H.R. 3962 on a variety of federal programs and agencies as well as from a number of new and existing programs subject to future appropriations.
In other words, there are hidden costs. What are they? The report doesn’t say in detail, but it gives a few examples:
- $5 to $10 billion to the Internal Revenue Service for “implementing the eligibility determination, documentation, and verification processes for subsidies.
- $5 to $10 billion to Health and Human Services for “implementing the changes in Medicare, Medicaid, and CHIP as well as certain reforms to the private insurance market.
- “Costs of a number of grant programs and other changes in Divisions C and D of the legislation. CBO has not completed a review of those provisions.”
- And the big one:
As noted in the previous section and in Table 1, funding for the proposed Public Health Investment Fund and Prevention and Wellness Trust would also be subject to future appropriation action. The bill would authorize appropriations totaling about $34 billion for those purposes (of which approximately $33 billion would be spent over the next 10 years). The Committee on the Budget has directed CBO to count such spending as direct spending for purposes of budget scorekeeping in the House of Representatives.
I like that last sentence. The Committee on the Budget told CBO not to count $34 billion of costs associated with this legislation. At least the CBO is up front about it. It’d be interesting to ask the Committee members about that one, wouldn’t it?
Anyway, if you add up those costs, which the CBO identified as “major”, but not all inclusive, you end up with an additional $44 to $54 billion, plus whatever those grant programs would cost. That $104 billion “savings” is now $50 billion. Even less when you include the grant programs and other costs that this preliminary report doesn’t specifically mention.
Oh, and then there are Important Caveats Regarding This Preliminary Analysis. The first item is particularly interesting. The report is based on preliminary legislation rather than the bill as actually introduced. Also, “the analysis does not reflect all of the provisions of the bill.”
In other words, there are MORE hidden costs.
The final section, estimating effects of the legislation beyond the first ten years, says that it will decrease deficits slightly. But it also has a few caveats of its own:
These longer-term projections assume that the provisions of H.R. 3962 are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the SGR mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress. The bill would put into effect (or leave in effect) a number of procedures that might be difficult to maintain over a long period of time. It would leave in place the 21 percent reduction in the payment rates for physicians currently scheduled for 2010. At the same time, the bill includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades-well below the roughly 8 percent annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires.
The long-term budgetary impact of H.R. 3962 could be quite different if those provisions generating savings were ultimately changed or not fully implemented. If those changes arose from future legislation, CBO would estimate their costs when that legislation was being considered by the Congress.
In other words, any projected savings is wishful thinking.
Honestly, you should read the report. It’s only 27 pages long, and about half of those are tables of numbers. Just reading the report without the numbers should be enough to convince you that this bill, like all the others, is a budget buster.
And, of course, that analysis was based on the bill as introduced on October 29. It was hailed as an “894 billion dollar” package. Today, the press is saying a “1.2 trillion dollar” package. I’m unable today to find any information about the additional $330 billion or how it’ll be offset by revenue so that the legislation remains budget neutral.
Not to be outdone, the Republicans published their own plan for health care finance reform. It has no chance of being passed, which is a good thing. The CBO estimate says that it will cover fewer people and will save $68 billion over 10 years. In other words, it’s just a way for Republicans to say, “See? We have a plan!”
Nobody in Congress has the courage to stand up and say, “Stop!” Where’s the voice of moderation here? Congress will mandate billion dollar multi-year environmental impact studies before doing something trivial, but now wants to push through, without sufficient study, legislation that will have a huge impact on every citizen in the country. Why? Because they can and because they think it will get them votes. For all their pronouncements about it being “good for the country” and “the right thing to do,” that’s all they’re really interested in: re-election. Otherwise they’d be much more concerned about the real costs of what they’re so eager to support.
The President has said publicly that he will not sign (or did he say that he would veto it?) a bill that “adds one penny” to the budget deficit. It’s probably too much to expect the President to subject any legislation to extensive real world analysis, so I’ll have to be content with the CBO’s final report. But if, as I suspect, the bill that will be presented for a vote in the House on Saturday turns out to require deficit spending, I will expect the President to keep his word.
