Thursday, March 26, 2009

Anybody Know Where We Can Find a Quick Trillion Dollars?

"Irrational exuberance" over the chances for health care reform meet the budget realities.

The House and Senate Budget committees have begun work on the federal budget.

Last week’s CBO report estimated the Obama budget would:
  • Produce a nearly $9.3 trillion deficit over the next decade.
  • Generate annual budget deficits of nearly $1 trillion in each year from fiscal year 2010 to 2019.
  • Increase budget deficits to more than 4% of GDP each year over the next decade.
  • Double the national debt to 82% of GDP by 2018 (it was 8% of GDP in 2001).
Still stunned from that report, and under immense pressure from moderates in the Democratic party to cut spending, both the House and Senate Budget chairs have made it clear they intend to reduce the Obama budget and see the Congress proceed with health care reform following the pay-go rules.

That would mean any new health care reform spending over the next ten years needs to be offset with either cuts to existing spending or with new revenue.

President Obama outlined a $634 billion “down payment” on health care reform in his budget.

Half of that, $318 billion, came from raising taxes by reducing the charitable and mortgage deductions high-income folks pay. That proposal is deader than a doornail up on the Hill.

Another $175 billion comes from payments private Medicare plans get. That proposal will likely survive the budget process--although it may well just get swallowed up fixing the upcoming 21% Medicare physician fee cut. Another $141 billion over ten years comes from minor cuts to health care providers and has a chance of surviving the legislative sausage factory.

So, assuming the HMO cuts and provider cuts survive in the form they were proposed in the Obama budget, we would begin the health care reform process with about $318 billion toward the ten-year cost of the effort.

The consensus of opinion is that an Obama campaign-like comprehensive health care plan will cost at least $1.5 trillion over ten years.

That means for the Congress and the President to achieve comprehensive health care reform they will have to come up with at least $1.2 trillion from a combination of revenue sources and cuts.

Since there aren’t any extra dollars elsewhere in the budget, it’s a good assumption any cuts to pay for health care reform are going to have to come from the health care budget itself.

Comprehensive health care reform of the kind Democrats talked about during the campaign literally comes down to finding another $1.2 trillion to pay for it.

I will remind you of the CBO’s December report on health care budget choices that provides a list of 115 options. It literally provides us with an a la carte menu of options to choose from. It also makes it clear that the cost containment “lite” proposals like wellness, prevention, pay-for-performance, and health information technology hardly make a dent. The big money is in the politically problematic areas of cutting providers and beneficiaries in very tangible ways.

Even if a politically acceptable tax increase can be found to replace the first one the President proposed, that still leaves us about a trillion short.

Any volunteers?
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