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January 4 2011

The "Cost" of Repealing Health Care Reform

Nicole Kurokawa Neily

Obviously, Democrats were going to cry foul over the GOP’s efforts to repeal health care reform.

But ironically, one of their talking points is that repealing the bill will increase the deficit – because the Congressional Budget Office’s initial score of the Patient Protection and Affordable Care Act stated that the health care reform overhaul would REDUCE the deficit.

Now, I seem to remember a few fishy accounting tricks that were used to come up with those numbers…

The Congressional Budget Office gave a nod to these problems in a March 20, 2010 letter to Speaker Pelosi, which stated (emphasis added):

Those longer-term calculations reflect an assumption that the provisions of the reconciliation proposal and H.R. 3590 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 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 by the Congress. 

The reconciliation proposal and H.R. 3590 would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time. Under current law, payment rates for physicians’ services in Medicare would be reduced by about 21 percent in 2010 and then decline further in subsequent years; the proposal makes no changes to those provisions. 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 reflect an assumption that the Independent Payment Advisory Board established by H.R. 3590 would be fairly effective in reducing costs beyond the reductions that would be achieved by other aspects of the legislation.

Under the legislation, CBO expects that Medicare spending would increase significantly more slowly during the next two decades than it has increased during the past two decades (per beneficiary, after adjusting for inflation). It is unclear whether such a reduction in the growth rate of spending could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care. The long-term budgetary impact could be quite different if key provisions of the legislation were ultimately changed or not fully implemented. If those changes arose from future legislation, CBO would estimate their costs when that legislation was being considered by the Congress.

As the Christian Science Monitor pointed out 2 days before the health care bill passed, the CBO “can only judge what’s laid before it, and in a matter as complex and political as this, that necessarily limits its real forecasting ability. The office can’t factor in, for instance, political behavior. Right now, the legislation assumes Congress will go ahead and cut Medicare reimbursements to doctors by 21 percent the way it’s supposed to. But lawmakers keep putting off this cost-saving measure, and everyone knows it’s not going to happen. The CBO probably knows that, too, but it can’t account for a political probability. It has to work with what’s before it.”

Former White House economist Keith Hennessey pointed out that the CBO further clarified the budget “savings” from health care reform in August 2010:

The new CBO baseline document provides this information, although five months too late to affect any votes.  They begin by repeating information from last March:

In March, CBO and the staff of the Joint Committee on Taxation estimated that the net effect of PPACA and the Reconciliation Act would be to reduce federal budget deficits over the 2010-2019 period by a total of $143 billion. 

That estimate consisted of a net deficit reduction of $124 billion from the health care and revenue provisions in both bills.

Only now does CBO tell us in a parenthetical:

Taking into account all of the provisions related to health care and revenues, the two pieces of legislation were estimated to increase mandatory outlays by $401 billion and raise revenues by $525 billion. 

This is a very different picture.  Imagine two scenarios of a lawmaker who was on the fence last March.  He or she is a Blue Dog Democrat, or a Democrat from a fiscally conservative red district, and is deeply concerned that the legislation may be fiscally responsible.  He is presented with two different statements from CBO:

•       “CBO says these bills will reduce the budget deficit by $124 billion over the next decade.”

•       “CBO says these bills will increase federal entitlement spending by $401 billion over the next decade, and will increase taxes by $525 billion over that same time period, for a net deficit reduction of $124 billion.”

These are very different statements.  Both are true.  CBO said only the first when Members were looking to understand the fiscal impacts of this legislation.  This failure by CBO is important both because they failed to fully inform legislators and because that lack of information may have affected how some Members voted.

And let’s not forget – aside from the direct effects of the health care reform bill (onerous paperwork burdens, anyone?), there are significant dynamic effects that will hinder economic growth and job creation – further delaying the country’s recovery.

So sure, guys – let’s talk about the effects on the deficit. By looking at the full package. By that metric, repealing health care reform is a major step on the road to getting the nation’s finances under control.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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