Sunday, February 22, 2009

Raising the Price Before You Put It On Sale—The Obama Budget and His Health Plan

The Obama budget team has made it clear they are going into the next federal budget process playing it straight on many fronts that the prior administration had fudged on.

The cost of the wars, the cost of adjusting the alternative minimum tax each year to keep the middle class from falling into it, the cost of disaster relief, and the cost of avoiding the otherwise automatic cuts to Medicare physician fees because of the Sustainable Growth Rate (SGR) formula were all conveniently left out of the Bush budgets making them look a lot better than they really were.

Facing a $1.5 to $2 trillion deficit this year you might as well throw the lot on the pile, get it over with, and create an even greater imperative for change—a trillion here a trillion there "and pretty soon it gets to look like real money."

In the end an honest accounting is all to the Obama administration’s credit.

But on the health care front anyway, it may also be very shrewd politics.

Suddenly, the cost of Medicare becomes a lot higher over the next ten years. If the budget now reflects that none of the expected SGR cuts will be made to Medicare physician payments that would put the nation’s ten year health care bill about $320 billion higher than current calculations—using the CBO’s December cost option report to gauge the impact. If you assume the docs would have gotten a Medicare Economic Index increase each year the additional cost is closer to $600 billion.

So, the budget baseline increases just before you put your health care reform plan on the table. Any cost or savings calculations conveniently occur from the higher baseline and the cost of the proposed health plan looks smaller than it would have because you already have much of the doc fix factored in before your new plan takes effect.

Suddenly, the Obama health plan's solution to the Medicare physician fee issue is at least not costing as much as it would have and is maybe even saving some money rather than costing money as it would have under the old budget assumptions!

Either way it's all spin of course. The cost is the cost. And, this is a much more honest cost basis than we have had—just as long as we don’t lose track of the numbers!

But it’s also a lot easier to spin from a number $300 billion higher than it would otherwise have been.

Geeez, this Orszag guy is good.
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