The Senate’s Health Spending Binge: Understanding the CBO

via: Heritage

On July 2, 2009, the Congressional Budget Office produced its second preliminary analysis of title I of the “Affordable Health Choices Act,” as drafted by the Senate Committee on Health, Education, Labor, and Pensions (HELP). This CBO “score” has been used a great deal over the past few weeks in the specific analysis of the HELP version of health care reform legislation, but it also is a valuable lesson in using caution against oversimplification. It provides some, but not all of the critical answers needed to fully understand reform legislation.

“Costs” vs. “Net Costs”. To some, the bottom line shows that health care reform will “cost” $597 billion over 10 years. Actually, the “cost” is $789 billion–$723 billion for exchanges subsidies, $56 billion for Small Business Credits, and $10 billion for reinsurance for retirees. This cost is partially offset by $98 billion in increased tax revenue; $58 billion in net collections of premiums for the CLASS Act provisions; and $36 billion in lower Medicaid and SCHIP spending. The public should understand that the HELP Committee arrives at a lower net cost by collecting $156 billion more in revenue compared to current law. Furthermore, the HELP Committee costs do not reflect the Finance Committee policies to expand Medicaid by as many as 15 million people. When that happens, HELP will not only lose their Medicaid savings, the cost of the bill will likely double. In addition, any final CBO score will show only federal Medicaid spending. The state share, about 43 percent of the cost of Medicaid, will be hidden from view.

Most of Spending in Just 6 Years. While it is technically correct to say that the cost is $789 billion over 10 years, the majority of the spending occurs in only six years. Spending for a 10 year period when fully implemented will obviously be significantly higher. Moreover, after that ten year period, it is likely to be enormous.

Beware of Empty Promises. Reinsurance for Retirees costs only $10 billion because it assumes Congress will end the benefit by 2014. In reality, once started, it is a rarity for Congress to end any type of publicly provided benefit.

Baseline Hocus Pocus. CBO projects current spending and revenues based on “current law.” But the Administration can make money disappear and reappear so that Congress can capture savings. For example, the Administration just rescinded three Medicaid regulations which would mean more Medicaid spending. Congress could then adopt similar policies and be “credited” with savings. The Administration appears to be manipulating the cost of the Medicare “doc fix” by removing certain Part B drug costs that are built into “current law” payments.

$4,700—Too much or too little? CBO estimates that in 2014, the average subsidy per subsidized enroll will be $4,700. This will increase to $6,100 in 2019. These taxpayer funded subsidies will create a whole new set of inequities among families. We don’t know from CBO whether the same amount of coverage would be gained if the subsidies were lower. It will be interesting to learn whether Americans support giving out $4,700 in tax free benefits.

Who Gets the Savings? Creating Medicare and Medicaid savings to offset new federal spending does not help family budgets. Judging from the past, providers who are forced to absorb lower government reimbursement pass along those costs to private paying customers. Legislation that has been released to date fails to explain how health care costs will be lower for the average American family.


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One response to “The Senate’s Health Spending Binge: Understanding the CBO

  1. Of course increasing taxes on the rich is foolish, but it was necessary to protect and keep the insurance industry in the loop. They gave $46 million in campaign contributions and obviously had more clout than the rich folks. That’s what you get when politicians are allowed to take private money to run for public office. It’s called corruption. Only public funding of campaigns would have made the decision come out in the best interest of the public.

    Jack Lohman

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