Congressional leaders are gleefully reporting that the Congressional Budget Office score of their health care proposal released yesterday shows that their legislation would reduce the federal deficit by $138 billion in the first ten years. Not so fast—consummate professionals though they are, CBO provides a projection based on assumptions about the future conduct of Congress that do not always represent reality.
Ruth Marcus of the Washington Post, not exactly a supporter of the GOP, puts it this way: “…Democrats will be pointing to this preliminary CBO score as if it is engraved on stone tablets. Republicans will proclaim their respect for the CBO and proceed to argue that its estimates should not be taken too seriously in this instance. This may come as a surprise, but I think the Republican argument is closer to correct. To crow, as did House Speaker Nancy Pelosi, that the package is “a triumph for the American people in terms of deficit reduction” is premature at best, delusional at worst.”
The reasons to expect wide discrepancies between the actual and projected cost of the bill lie in the gimmicks employed within the language of the bill to make it score as less expensive than it actually is. Included are the usual suspects we have seen time and again, including:
- Exclusion of the doc fix. The “doc fix,” which repeals a $371 billion Medicare cut for physician fees, is rolled into a separate bill. Lawmakers must remember: just because it’s not included in the official health bill doesn’t mean it doesn’t count as real spending.
- Double-counted savings from the CLASS Act. The CLASS Act included in the bill creates a new entitlement for which beneficiaries would pay premiums upfront for benefits received further down the road. Marcus explains: “Of the $138 billion saved in the first 10 years, $70 billion represents premiums collected for a new long-term-care program, money the government will have to pay in benefits later.” The revenue from the CLASS Act thus represents a false offset to other new spending.
- Dubious savings from Medicare. The bill contains billions in cuts to Medicare to offset other costs. As Marcus points out, “The CBO is required to assume that Congress will do what it promises”, making the point that politically unpopular spending cuts are unlikely to ever come to fruition—as best evidenced by the “doc fix” that occurs every year, adding to the deficit.
- A false ten year cost window. CBO scored the first ten years of enactment of the bill, which includes several years of raising revenue and fewer years of expenses. According to budget expert James Capretta, “Over a full ten years of implementation, the cost of the new entitlement spending would reach $2.5 trillion, at least, not $1 trillion as advertised by the White House.”
The reconciliation package also includes new gimmicks and questionable sources of revenue:
- Delay of an unpopular tax. Under the reconciliation bill, the excise tax on high cost plans would be implemented in 2018, thus reducing the total ten year revenues from the projected $149 billion under the Senate bill to just $32 billion. More interestingly, the reconciliation bill would index the application of the tax to growth in the Consumer Price Index (general inflation), which means that more and more middle class Americans would be affected by the tax once its collection began in 2018. Kicking this tax down the road to a future President and Congress portrays the unwillingness of lawmakers to collect it. Marcus questions, “Will the tax really be collected…long after many of those voting for it will have left office, long after the benefits it is helping to finance have kicked in?”
- Decreased value of subsidies. Says Capretta, “to jury-rig “long-term deficit reduction,” the latest plan would first increase the premium assistance subsidies paid to low and moderate wage families above the levels in the Senate-passed bill, but then index their value to something below the growth in premiums to give the appearance of deficit reduction in the decade after 2019.”
Though the White House and congressional leadership continue the charade of fiscal responsibility, the American people and other members of Congress, including Democrats, have long caught on. David Herzenhorn of the New York Times notes that even among Congressional Democrats, the cost impact of the legislation remains a deep and abiding concern:
“But even some lawmakers who voted for the Senate bill have been calling in recent weeks for additional steps to be taken to guarantee that new spending will not spiral out of control. They also want to ensure that Congress will follow through on proposed cuts, especially reductions to slow the growth of Medicare.
Many experts have warned that members Congress may not have the stomach to carry out the proposed cuts in the future. In January, five Democratic senators, including Michael Bennet of Colorado and Mark Warner of Virginia, sent a letter to the Senate majority leader, Harry Reid of Nevada, urging him to include a “fail-safe” mechanism in the final bill that would result in cuts if spending were to exceed estimates.”
Blue Dog Democrats’ lingering suspicions regarding this bill’s spending spree are justified. Only in Washington is massive spending incorrectly attributed as the way to control costs. The American people have shown in poll after poll that they clearly understand this, even as the ideologically driven Congressional leadership refuses to listen to them.
Vivek Rajasekhar contributed to this post.
As the House of Representatives prepares for a final round of debate on the health care legislation, ordinary Americans must grasp the huge impact on the future of the country. House Speaker Nancy Pelosi is pulling out all the stops to get the 216 votes needed to pass the Senate health bill, H.R. 3590 (PDF). The Speaker is also promising to fix the Senate bill’s many objectionable components later through the budget reconciliation process, parliamentary rules normally used to reconcile tax and spending provisions with the annual congressional budget resolution.
Meanwhile, the House leadership is also reportedly pursuing the controversial “Slaughter Rule,” in which the entire Senate bill be “deemed” to have passed the House without an “up or down” vote on the Senate language.
Regardless of whatever procedural shenanigans the House leadership tries to play, the end result would be enactment of the Senate health bill as the law of the land. That’s the end game. Period.
In a recent analysis, Heritage’s Kathryn Nix and Bob Moffit examine the consequences of policies embodied in the Senate bill. It would have enormous consequences for jobs, the economy, and the health care of every American. For example, it:
- Bends the Cost Curve Up: The Senate bill is projected to further increase the cost of health care. According to the latest report (PDF) by the Congressional Budget Office (CBO), the bill would increase health care spending by $210 billion over the next ten years.Provisions in the bill such as federal regulations on insurers and taxes on medical devices and prescription drugs distort health care markets by creating the wrong economic incentives.
- Increases the Federal Deficit: The Senate leadership used accounting tricks and budgetary gimmicks to claim that the Senate Bill is “deficit neutral.” However, when government outlays and revenue collection are considered together in a 10-year period, Medicare cuts are not double-counted, and the “doc fix” is included, the bill will substantially increase the deficit, with an overall cost of approximately $2.3 trillion.
- Expands Medicaid: The bill calls for an expansion of Medicaid, an already-inefficient entitlement program. Heritage analysis has shown that Medicaid expansion is costly, and yet failures to meet the health care needs of its beneficiaries.
- Imposes additional costs on insurance. New federal regulations will include a minimum medical loss ratio, an excise tax on high-cost insurance plans, and federally defined benefits. These provisions would increase premiums
- Invites Insurance Market Instability : The combination of an individual mandate and the requirement of insurance companies to guarantee coverage regardless of preexisting conditions invites instability in health insurance markets. Younger and healthier Americans are likely to pay the cheaper mandate penalty rather than purchase a more costly health plan. The end result would be a “death spiral” with only sick people comprising the risk pool—causing a substantial increase in premiums
- Creates Incentives for Employers to Drop Group Insurance Plans: The structure of the employer mandate creates incentives for firms that hire a large percentage of low-income workers to drop health insurance all together.
- Discriminates Against Low Income Workers: Employers would be required to pay a $3000 fine for each low-income employee that opts out of the employer coverage and into the state government exchanges. This creates incentives for employers to discriminate against workers from low income families when hiring
- Creates New Inequities Among Employees: Because eligibility for subsidies in state government exchanges is determined by family income, employees making the same wage can receive vastly different enumerations based on family size and the spouse’s income. The lower the income of the entire family, the greater the amount of federal assistance an employee will receive relative to another with higher family size and/or income.
- Creates an Uneven Playing Field for Private Insurance: The legislation requires the Office of Personnel Management (OPM) to sponsor two health plans that would compete nationwide against private health plans in the state insurance exchanges. This could create a de facto public option, with separate rules on benefits, profits, and medical loss ratios Ultimately, this separate treatment under the rules could work against private plans that compete with government-sponsored plans. Worse, there is always a danger of dunning taxpayers to bailout the OPM-administered plans.
- Taxes the Middle Class: Contrary to President Obama’s campaign promises to add no new taxes to the middle class, the bill calls for several taxes that would hit the middle class, including but not limited to an excise tax on high cost insurance plans taxes on medical devices and prescription drugs and a tax on investment income included in the President’s proposal, which would presumably be included by reconciliation.
- Penalizes Marriage: The structure of health insurance subsidies are inequitable, offering more financial assistance to non-married couples than married couples with comparable incomes.
The Senate health bill fails to address many of the underlying deficiencies in health care, while it concentrates power in the hands of government officials. Contrary to what the president keeps insisting, it is indeed a federal takeover of health care.
Rick Sherwood currently is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/About/Internships-Young-Leaders/The-Heritage-Foundation-Internship-Program