Thursday, November 19, 2009

The limits of a CBO score 

I've been reading the CBO/JCT report on the Reid health care plan. See Keith Hennessey for your first cut on new taxes; I'm going to confine this post to things I found interesting that he does not mention. Ed Morrissey links to a second CBO letter today that combines the Reid proposal with the "doc fix", and finds that the deficit goes up not down if you include it.

Let's first make sure we understand a CBO score, which only looks at the deficit (rather than private sector impact) and only for ten years. Director Elmendorf writes:
In the decade after 2019, the gross cost of the coverage expansion would probably exceed 1 percent of gross domestic product (GDP), but the added revenues and cost savings would probably be greater. Consequently, CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law�with a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO�s 10-year budget estimates. The expected reduction in deficits would represent a small share of the total deficits that would be likely to arise in that decade under current policies.
That's a good score for Sen. Reid. Both the Reid and Pelosi plans have been written in ways that provide for deficit reduction beyond 2019. Of course, that means government can't pass things like doc fix in the future, as Elmendorf notes in his letter.

Reid's proposal ends up covering 94% of Americans who live in the U.S. legally, while Pelosi's is expected to cover 96%. Should this matter? If health care is a right, wouldn't you want the 96% bill rather than the 94% bill?

Down towards the bottom, however, you find discussion of unfunded mandates.
The total cost of mandates imposed on the private sector, as estimated by CBO and JCT, would greatly exceed the threshold established in UMRA for private entities ($139 million in 2009, adjusted annually for inflation). The most costly mandates would be the new requirements regarding health insurance coverage that apply to the private sector. The legislation would require individuals to obtain acceptable health insurance coverage, as defined in the legislation. The legislation also would penalize medium-sized and large employers that did not offer health insurance to their employees if any of their workers obtained subsidized coverage through the insurance exchanges. The legislation would impose a number of mandates, including requirements on issuers of health insurance, new standards governing health information, and nutrition labeling requirements.
Similar costs are imposed on states and municipalities. One of those unfunded mandates is Medicare Advantage, which would be withdrawn under the Reid substitute in 2011. Democrat Sen. George Voinovich recently said that health care reform "should not come at the cost of limiting choice and access to physicians and health services for seniors." Medicare Advantage cuts provide $118 billion of the savings in the Reid proposal.

One other paragraph indicates the limitations of a CBO score:
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. [Emphasis mine]
The goal has been to "bend the curve" and CBO indicates that it is bent a little. But it may be that this is all taken out of hide, particular out of the hide of seniors.

Overall, the CBO cannot tell us whether the share of GDP spent on health care will rise or fall or stay the same. If the goal really is to lower the share of spending we do in America on health care, shouldn't the Congress be able to answer this question?

I close with a hear! hear! for Hennessey's point on what Reid is proposing with the violation of the health insurance model implied by Reid's proposal:
...most people think their individual taxes paid are being used to finance their benefits, when in fact the funds are used to subsidize other people�s benefits. But the social insurance model and dedicated payroll taxes have been a core principle of Social Security and Medicare financing since they were created, and advocates (especially on the Left) of those programs have fiercely defended this principle.

Leader Reid�s bill would use new Medicare payroll taxes to finance a new health entitlement outside of Medicare. His bill would turn Medicare payroll taxes into a general financing mechanism like the income tax. There is a slippery-slope argument against this that I would normally expect from the Left. If Republicans had proposed this, I would expect AARP to come unglued and raise fears among seniors that, if this proposal becomes law, future Congresses might take payroll tax revenues and use them for highways or defense or other non-social insurance spending. I am interested to see how AARP reacts. Will they support the Reid bill as they did the House bill? (Reporters: There�s a story for you. Ask AARP.)
If the Reid bill lays bare the fiction that our Social Security and Medicare contributions sit in a box waiting for us to claim them in old age, I would almost find this debate worth the headaches it causes. Almost.

UPDATE: Nice chart from the Tax Foundation:

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