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Concord on the Risks in the Health Reform Reconciliation Bill

March 22nd, 2010 . by economistmom

The Concord Coalition has released a series of videos, blog posts, and statements explaining the fiscal risks and challenges in the health reform reconciliation bill. One of the videos is shown above, but you can get to the others through this page. We basically elaborate on the quick points I made in my blog post from last week. We think the bill does a lot of good things and has tremendous potential to be fiscally responsible–if the political will is there, not just now, but more crucially (and unfortunately much more dubiously) ten years from now.

What if the fiscally-courageous “follow through” doesn’t materialize and Congress and whichever Administration is in place ten years from now says “never mind”?  On Friday the Congressional Budget Office did just this calculation.  While the reconciliation bill modifying the Senate bill as written would reduce the budget deficit in the second ten years by about one half of one percent of GDP, CBO director Doug Elmendorf explains in his blog post that without the fiscally-courageous “follow through” the deficit would instead rise in the second ten years (emphasis added):

Today, in a letter responding to questions from Congressman Ryan, CBO described the effects on the federal budget of enacting the reconciliation proposal and the Senate-passed health bill if:

  • The excise tax on insurance plans with relatively high premiums—which would take effect in 2018 and for which the thresholds would be indexed at a lower rate beginning in 2020—was never implemented;
  • The annual indexing provisions for premium subsidies offered through the insurance exchanges continued in the same way after 2018 as before—in contrast with the reconciliation proposal, which would slow the growth of subsidies after 2018;
  • The adjustment to physician payment rates under Medicare that was passed by the House last fall was included; and
  • The Independent Payment Advisory Board—which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program’s spending, and whose recommendations would go into effect automatically unless blocked by subsequent legislative action—was never implemented.

We estimated that if this set of changes was made, the legislation as modified would increase federal budget deficits during the decade beyond 2019 relative to those projected under current law—with a total effect during that decade in a broad range around one-quarter percent of GDP.

That’s a three-quarter percent of GDP difference between the bill(s) as written and a new “health policy extended” baseline that would apply for several years after passage of the bill.  And it’s the difference between being able to call this a major deficit reduction plan (which was a sketchy label anyway for a plan with a primary purpose of expanding health coverage), and more realistically calling it a deficit-financed expansion of a new entitlement.  So Concord’s position is that we’ll have to remain “vigilant” about cost control going forward, and we’ll certainly have to “follow through” on the good stuff in this package that isn’t supposed to happen for awhile.

(PS:  We’re going to need a lot of help with this fiscal vigilance, and this isn’t a message that attracts a lot of lobbying money, trust me.  If you believe in Concord’s mission and policy positions, please consider joining us and supporting our efforts!  I don’t make any money in doing this blog (note: not even any ads!), but instead I hope I can at least broaden Concord’s community through it.)

5 Responses to “Concord on the Risks in the Health Reform Reconciliation Bill”

  1. comment number 1 by: Brooks

    Forgive this pedantic comment, but I wish someone would educate Elmendorf on the subjunctive (”were” rather than “was”) as in “if changes were not implemented”. That said, it seems to me that “is” or “are” would be preferable to “were” in this case (e.g., “if the changes are not implemented”).

  2. comment number 2 by: SteveinCH

    Well, my only reaction is that Elmendorf has a limited imagination. On the excise tax, if they roll back the indexing cut that’s in the budget bill (highly likely) they lose revenue versus the baseline.

    On the IMAB, is it really so hard to imagine that Congress will act and reduce the rate of reduction. Look at the mammogram discussion for a preview of what we can expect since the IMAB will actually have to describe how to lower the costs as opposed to Congress decreeing they be lowered.

  3. comment number 3 by: Jim Glass

    Unfortunately for the budget, Elmendorf’s list of revenue raisers that may not materialize is the least of it.

    The bill is designed to be politically unsustainable on the spending side (as Hennessey has pointed out) with incentives to increase spending that are *huge*.

    Two examples:

    (1) With guaranteed issue, and the penalty for not having insurance so trivial, why would anyone buy it when healthy?

    The Mass. plan, upon which Obamacare is modelled, is already collapsing — with Gov Patrick calling for overt price controls — due to people dropping coverage. Here in NYS ever since guaranteed issue was adopted the number of insured has been dropping steadily, causing premiums to shoot up on the rest of us, and me as a self-employed person to pay premiums like this.

    Why should I keep paying this now? I’m going to be dropping my insurance right away. You all can pay for me from now on. Thank you very much in advance!

    Multiply by millions.

    (2) To quote Hennessey:

    “The new insurance subsidies are designed to cover those who buy health insurance outside of employment, but not those with the same salary who get health insurance through their job. If you believe this inequity is politically sustainable, then the bill is paid for.

    “If instead you think there will be unbearable political pressure to provide equal treatment and expand subsidies to some of the 100+ million Americans who today get their health insurance through their job, then the subsidies you enact now are only the camel’s nose under the tent, and you are setting us on a path to an even larger and unfunded government promise.”

    Politicians always resolve “inequities” like this by giving more money to those getting the “too little”, never by cutting back amounts going to those getting the “too much”. (Until the whole program becomes too costly and top-down price controls are imposed, as is happening in Mass. today.)

    I could go on from here with a list from (3) through (XX) — but one can just consider how past medical care programs have exceeded cost projections.

    These entirely predictable spending over-runs could easily dwarf the 0.75% of GDP revenue shortfalls that Elmendorf considers … and will be in addition to them.

  4. comment number 4 by: Brooks

    Jim,

    To your point re: disincentive to purchase coverage under guaranteed issue (and presumably community rating, or at least an inability to charge higher premiums for pre-existing conditions), my understanding is that in 6 months guaranteed issue will apply to children (and again, presumably without premiums being affected by pre-existing conditions). As far as I know there is no individual mandate to cover children. So, other than the matter of any substantial waiting period, why would anyone purchase coverage for their children unless and until they need healthcare that cost more than the premium? If very few do, why should insurers offer coverage for children at all if they are almost guaranteed to lose money on it? Will they be required to offer it — to knowingly serve a segment on which it will almost certainly incur large losses — in order to get on the exchanges?

  5. comment number 5 by: SteveinCH

    Brooks,

    They won’t be “required” to. It will just be a precondition of competing on the exchanges. That’s so much different than a requirement ; )