One of the central arguments President Barack Obama has made on behalf of the health care plan he wants Congress to approve in coming weeks is that it would begin to address the problem of rising costs and thus also begin to bring down future federal budget deficits.
But will it?
The president’s plan has not yet been assessed by the Congressional Budget Office. But CBO has provided a cost estimate for the Senate-passed bill, upon which the president’s proposal is built. That estimate shows the Senate bill would reduce the budget deficit by $132 billion through 2019. CBO also says that the Senate bill would likely reduce projected deficits even more during the second decade of implementation.
But, as Republican Rep. Paul Ryan of Wisconsin noted at last week’s Blair House meeting, there are a number of reasons to be skeptical about this claim.
For starters, the Senate bill omits the president’s proposal to permanently restore a 21 percent reduction in Medicare’s fees for physician services, now in effect as of March 1. The administration estimates that overriding this cut will cost $371 billion through 2020. Last summer, the House planned to include a permanent repeal of the cut in its health reform bill. But when the president imposed a 10-year budget of $900 billion on the reform legislation, Democratic leaders decided to pull the physician fee spending out of it and pass it separately.
The health bill includes scores of Medicare provisions, touching on just about every aspect of the program. The only major Medicare provision not in the bill is the costly “doc fix.” And the only reason for the omission is to make the total cost of the health reform bill appear lower. But passing the “doc fix” in a separate bill doesn’t make the cost go away. When the president’s entire health care agenda, including the “doc fix,” is tallied up, there is no deficit reduction over the next 10 years.
Ryan noted in his remarks at Blair House that the Senate bill would start up a new long-term care insurance program for the disabled. Participants would be required to pay in premiums for a number of years before becoming eligible for any benefits. Consequently, in the new program’s early years, there would a surplus, which CBO estimates at $73 billion over 10 years. The president’s claim of deficit reduction depends on double-counting these funds, first as an offset for the larger health care bill and then as a revenue source for long-term care insurance benefits beyond the 10-year window of the CBO estimate.
Over the long run, what matters in terms of the budget in the president’s health plan are the entitlement expansions, the effectiveness of “bending-the-cost-curve” measures, and the tax increases and spending cuts used to pay for broadened insurance coverage.
CBO expects the cost of the new entitlement spending aimed at coverage expansion in the Senate bill – the premium subsidies in the exchanges and the expansion of Medicaid — to reach about $200 billion by 2019 and then grow at a rate of 8 percent every year thereafter. In other words, this new health entitlement spending is expected to escalate just as rapidly as Medicare and Medicaid have in the past. CBO does not expect the “delivery system reforms” in the Senate bill, which are mainly small initiatives and pilot programs, to amount to much of anything in terms of cost control.
So how would the president pay for another expensive and rapidly growing entitlement? First, he would try to slow the rate of growth in the Medicare program, but not with new measures to weed out wasteful spending. His claim of long-term deficit reduction comes mainly from across-the-board payment rate reductions for hospitals, nursing homes and other providers of Medicare services. They would get a lower inflation update every year, in perpetuity. But these kinds of cuts do nothing to improve the efficiency of patient care or reward quality.
The chief actuary of the Medicare program has said repeatedly that these cuts are unrealistic because they would continuously cut reimbursements without touching the actual costs of providing care. He expects many facilities would be driven into serious financial distress. And without these Medicare cuts, the Senate bill is almost certainly a long-term budget buster.
The Senate bill also includes the so-called “Cadillac tax,” a new fee imposed on insurers and employers offering high-cost plans. As passed, this provision would generate substantial revenue in the second decade of implementation because the threshold for what constitutes “high cost” would rise much more slowly than medical inflation. Eventually, virtually the entire country would be in plans deemed “high cost.”
The president is relying heavily on the large, second-decade revenue increase associated with this tax for his claim of long-term deficit reduction. But just last week, under heavy pressure from union leaders, the president proposed to delay the tax from 2014 to 2018, well past the point when he will have left office. It will now raise almost nothing over the next 10 years, but the administration still claims credit for the sizeable revenue that would come in a second decade. That revenue would materialize, however, only if future officeholders were more willing than their counterparts today to impose large new taxes on a broad cross-section of the American middle class.
The federal government is piling up new debt at rates not seen since World War II. As Warren Buffett said recently, what the country desperately needs is a serious plan to slow the pace of rising health care costs.
What the president’s plan would deliver, however, is dead-certain entitlement spending, financed with speculative revenue and spending cuts that almost certainly will not work as advertised. The president says Congress should pass his plan to improve the budget outlook. In fact, Congress should reject it to protect the budget from more unfunded entitlement obligations.
Cross-Posted on Kaiser Health News
The Department of Education today released the names of the 16 finalists in the competition for federal Race to the Top (RttT) grants. The finalists include the District of Columbia and 15 states: Colorado, Delaware, Florida, Georgia, Illinois, Kentucky, Louisiana, Massachusetts, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, and Tennessee. In all, 40 states had applied for the grants. In March, state leaders will come to Washington to deliver presentations on why their states merit a slice of the $4.35 billion in grants. Winners will be announced in April.
The more than $4 billion RttT initiative is the largest discretionary fund an education secretary has ever had the opportunity to work with. As part of the overall $100 billion allocated to the Department of Education as part of the economic “stimulus” plan passed last year, RttT was supposed to be a means of spurring states to implement the types of innovative education reforms that the administration thought would spur academic achievement. Yet, the group of states that made the first cut on the way to a grant was a numerous one – conventional wisdom was that far fewer states would make the first cut.
In addition, the few, true reform measures that conservatives were applauding – namely charter schools – already appear to be on the chopping block. Andy Smarick over at Fordham writes today in a blog post entitled Major Disappointment:
The US Department of Education had the opportunity today to send a clear signal–that the Race to the Top is a once-in-a-lifetime opportunity, that very good wouldn’t be good enough, that only the biggest and boldest plans would merit consideration. Instead, the administration accepted 15 states and Washington, DC–nearly 1/3 of all applicants–as finalists.
The list includes Kentucky, a state with no charter law and New York, which brashly rejected reform legislation–including a critical cap lift provision–in advance of the deadline. It includes Colorado, which backed off of important reforms related to teachers, and Ohio, whose proposal was weak in a number of areas… I was preparing to heap praise on the administration for doing as they had suggested–only shining a spotlight on the very best of the best. I expected a finalist list of 5 and was quietly hoping for 3. My worst-case scenario was 12. I never would have imagined 16.
Amanda Farris over at the Republican Policy Committee echoes that sentiment, writing:
Secretary Duncan has repeatedly said that in order to qualify for Race to the Top funding states will need to meet “a very, very high bar.” It is therefore surprising that despite the fact that “ensuring successful conditions for high-performing charters and other innovative schools” was a selection criteria, New York and Kentucky were chosen as finalists. As you may recall, earlier this year New York refused to pass an education reform bill that would have expanded their charter school caps, and Kentucky does not even have a charter school law.
“Is this an indication that Secretary Duncan is not really all that serious about expanding quality charter schools and rewarding only the most reform-minded states? This lengthy list of finalists does not inspire much confidence.”
And, over at Edspresso, the feeling is mutual:
“Arne Duncan got an earful from reporters today. They asked about scoring and why some states emerged as finalists when they did little to improve various parts of their reform portfolio…
‘We said from day one,’ said Duncan, ‘that there were many, many factors’ that would go into the scoring. Many different things would be considered, he said. ‘Charters were never going to be the determining factor from the very beginning.’
Why else would only three of the sixteen have charter laws among the top ten in the country? Indeed, Kentucky has none and seven others have laws that are barely passing…And now that it’s clear that a strong charter law or performance pay system doesn’t seem to matter for the competition, state policymakers can breath a sigh of relief that they don’t have to do any heavy lifting to get or stay in the game, just hire a smart team of consultants to create convincing charts and use flowery language…
So, do you fans of increased federal involvement in education still think it can make a difference to improving education for our children?
Which hits at the central question. Fifty years of ever-expanding federal involvement in education without a commensurate increase in academic achievement should have given people pause enough to think that Washington – this time – will be a successful arbiter of innovation. The qualifying states lead one to believe that RttT is full of more rhetoric than reform, despite what the administration would have us believe.
This brings to mind what have been continuously referred to as “voluntary” common stardards. The recent revelation that the administration is considering tying the eligibility for Title I funds to their adoption would make them anything but voluntary.
This is all a good lesson in why those states still willing to feed at the federal trough should at least curb their expectations for results. Even when Washington promises.