The President's Health Plan Won't Cut the Budget Deficit

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One of the central arguments President Barack Obama has made on behalf of the health care plan he wants Congress to approve in coming weeks is that it would begin to address the problem of rising costs and thus also begin to bring down future federal budget deficits.

But will it?

The president’s plan has not yet been assessed by the Congressional Budget Office. But CBO has provided a cost estimate for the Senate-passed bill, upon which the president’s proposal is built. That estimate shows the Senate bill would reduce the budget deficit by $132 billion through 2019. CBO also says that the Senate bill would likely reduce projected deficits even more during the second decade of implementation.

But, as Republican Rep. Paul Ryan of Wisconsin noted at last week’s Blair House meeting, there are a number of reasons to be skeptical about this claim.

For starters, the Senate bill omits the president’s proposal to permanently restore a 21 percent reduction in Medicare’s fees for physician services, now in effect as of March 1. The administration estimates that overriding this cut will cost $371 billion through 2020. Last summer, the House planned to include a permanent repeal of the cut in its health reform bill. But when the president imposed a 10-year budget of $900 billion on the reform legislation, Democratic leaders decided to pull the physician fee spending out of it and pass it separately.

The health bill includes scores of Medicare provisions, touching on just about every aspect of the program. The only major Medicare provision not in the bill is the costly “doc fix.” And the only reason for the omission is to make the total cost of the health reform bill appear lower. But passing the “doc fix” in a separate bill doesn’t make the cost go away. When the president’s entire health care agenda, including the “doc fix,” is tallied up, there is no deficit reduction over the next 10 years.

Ryan noted in his remarks at Blair House that the Senate bill would start up a new long-term care insurance program for the disabled. Participants would be required to pay in premiums for a number of years before becoming eligible for any benefits. Consequently, in the new program’s early years, there would a surplus, which CBO estimates at $73 billion over 10 years. The president’s claim of deficit reduction depends on double-counting these funds, first as an offset for the larger health care bill and then as a revenue source for long-term care insurance benefits beyond the 10-year window of the CBO estimate.

Over the long run, what matters in terms of the budget in the president’s health plan are the entitlement expansions, the effectiveness of “bending-the-cost-curve” measures, and the tax increases and spending cuts used to pay for broadened insurance coverage.

CBO expects the cost of the new entitlement spending aimed at coverage expansion in the Senate bill

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