The good ideas are all still there in some size or shape, but it’s fascinating how some of the most promising features in the health reform bill have been diluted and/or postponed so much that they barely show up in the official ten-year window of the official CBO cost estimate.
Take the excise tax on high-end employer-provided health insurance plans, which is already a bit of a second-best solution compared with directly reducing or eliminating the exclusion of employer-provided health insurance under the personal (individual) income tax (because were it accomplished via a tax on households, it would be easier to adjust for households’ ability to pay). In order to get the labor unions on board, the tax now doesn’t take effect until 2018. Partly to make up for that newly lost time with the excise tax, and partly to cover the additional cost of now-higher subsidies offered through the new insurance exchanges, the excise tax was modified with less generous indexing starting in 2020–indexing the threshold to general inflation rather than inflation plus one percentage point. That change in indexing helps the trajectory of revenue offsets in the second ten years, but of course, 2020 is beyond the first ten years and so outside the official ten-year budget window–so the change shows up in the official cost estimate as shrinking the positive contribution of the excise tax (the best part of the bill, in my opinion) to the overall package.
The revenue estimate shows that the excise tax now only raises $32.0 billion in the ten-year budget window, because it barely gets started within the ten-year window. In contrast, $210 billion–more than half of the total $409 billion in revenue raised–comes from the increased Medicare tax on high-income households, which would start in 2013.
However fair one thinks it is to increase taxes on the rich, this Medicare tax is not a tax on health spending (it’s another income-based tax), and so it’s not a tax that can keep up with rising health costs as a reliable offset for expanded health coverage.
Ironically, the (fiscally-wise) excise tax now scores as providing less than half the amount of deficit reduction within the ten-year budget window as the (somewhat-budget-gimmicky) Community Living Assistance Services Support (CLASS) program, which is shown as raising $70.2 billion, even though we know that over the longer-run CLASS is a new entitlement which is expected to be a net drain on the federal budget.
The Independent Payment Advisory Board (”IPAB” or what’s commonly known as “the commission”) is still in the bill, too, but remember those recommendations wouldn’t be made until the second half of the decade, and hospitals are exempt until 2020.
So in the overall assessment the health reform/reconciliation bill isn’t full of gimmickry (it’s only tinged with it), does still contain some good health policy in it, was scored fairly and as accurately as possible by CBO. And it does officially show a net $138 billion in deficit reduction in the ten-year budget window. If all goes as planned (as written in this bill), in ten years there will be a decently-large excise tax on employer-provided health insurance in place, and the IPAB (commission) will be recommending wise ways to reduce Medicare and overall health costs. In ten years we will have learned something from the demonstration projects about how to save money, and we’ll implement those ideas more broadly throughout our entire health care system. And thus we will start “bending the health cost curve.”
That is, unless we don’t. Unless we get to 2018 when the excise tax is supposed to kick in and say “wait, we don’t want to pay that tax.” And unless we get to 2020 and say, “no, hospitals aren’t going to accept those recommended payment reductions.”…
So it might be a good plan if you look at where the bill says we should be in 2020, if we actually follow through when we get there.
And by the way, even if we follow through, we still won’t have solved the problem of unsustainable health costs and federal entitlement benefits and not enough ways to pay for them. That’s my boss Bob Bixby’s point in the NBC Nightly News piece above. Even $138 billion of deficit reduction over the first ten years or even $1 trillion over the second ten years doesn’t amount to much against a policy-extended baseline that shows $15 trillion in deficits just over the first ten years.
Earlier today (Thursday) the President called this “the most significant effort to reduce deficits since the Balanced Budget Act in the 1990s.” But let’s face it: this was not a “deficit reduction effort”–as if deficit reduction were its primary goal. It was an effort to expand health insurance coverage that happens to reduce the deficit. If we follow through on those good things we’re supposed to do much later, after President Obama is no longer President and after many members of Congress will be gone as well, that is.