Thursday, November 19, 2009

How Can Harry Reid Keep a Straight Face Telling Us His Health Bill Will Reduce the Deficit?

The accounting gimmickry in Harry Reid’s Senate health bill is astounding even by Capitol Hill standards.

Reid says his bill will cost $850 billion and reduce the deficit by $130 billion—all over ten years.

Based upon the outline Reid gave the CBO that could well be right. But let’s look at it further:
  • Reid delays most of the spending in the bill to 2014—a year longer than in the House. More importantly, his new taxes start in 2010. That is ten years of taxes and only six years of the expensive entitlement expansion! Who wouldn't want to use that gimmick to balance their books?
  • He once again avoids the $250 billion Medicare doc fee fix—apparently he didn’t get the message when the Senate voted down his attempt to pay the docs off with the $250 billion but just add it to the deficit. Since everyone knows the docs will get their money just add $250 billion to his $850 billion cost. (Unless you are one of those who says since the SGR was wrong in the first place so we shouldn't count it--and I want my capital losses back from last year because the financial crisis was wrong.)
  • He collects billions in new long-term care program premiums—a program that will have relatively low first year outlays—and lets that income offset the bill’s costs elsewhere making the overall bill’s net costs far better than they really are. That gimmick gives Reid about $70 billion of his $130 billion "deficit reduction." Sort of like spending the kids' college savings and claiming your family budget is balanced.
But maybe the real sleeper is this from the Congressional Budget Office’s (CBO’s) letter to Senator Reid regarding his bill (from page 17):
Key Considerations. These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress.

The legislation would put into effect a number of procedures that might be difficult to maintain over a long period of time. Although it would increase payment rates for physicians’ services for 2010 relative to those in effect for 2009, those rates would be reduced by about 23 percent for 2011 and then remain at current-law levels (that is, as specified under the SGR) for subsequent years. At the same time, the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). The projected longer-term savings for the legislation also assume that the Independent Medicare Advisory Board is fairly effective in reducing costs—beyond the reductions that would be achieved by other aspects of the bill—to meet the targets specified in the legislation.

Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades—well below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit). Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decades—much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear.
Basically, the CBO is saying its estimate that this thing would cost $850 billion and reduce the deficit by $130 billion is based upon unrealistic assumptions.

But Reid got the answer he was looking for!

We started the year in search of health care reform and this--so far--is what we get.
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