Tri-Committee Health Care Bill Deficit Neutral

by Bruce Webb

Press release from the House Ways and Means Committee dated Saturday July 18th. CBO Scores Confirms Deficit Neutrality of Health Reform Bill

Washington, D.C. — The Congressional Budget Office (CBO) released estimates this evening confirming for the first time that H.R. 3200, America’s Affordable Health Choices Act, is deficit neutral over the 10-year budget window – and even produces a $6 billion surplus. CBO estimated more than $550 billion in gross Medicare and Medicaid savings. More importantly, the bill includes a comprehensive array of delivery reforms to set the stage for lowering the future growth in health care costs.

Net Medicare and Medicaid savings of $465 billion, coupled with the $583 billion revenue package reported today by the House Committee on Ways and Means, fully finance the previously estimated $1.042 trillion cost of reform, which will provide affordable health care coverage for 97% of Americans.

“This fulfills the strong commitment of the President and House leadership to enact health reform on a deficit-neutral basis,” said Chairman Henry A. Waxman, Chairman Charles B. Rangel, and Chairman George Miller. “The reforms included in this legislation will help control health care costs and expand access to quality, affordable coverage to all Americans in a fiscally-responsible manner.”

The estimates also cover important reinvestments in Medicare and Medicaid, including phasing in the closing of the “donut” hole in the Medicare drug benefit. The bill’s long-term reform of Medicare’s physician fee schedule to eliminate the potential 21 percent cut in fees, and put payments on a sustainable basis for the future, will cost about $245 billion. Those costs, however, are not included in the net calculations above, as they will be absorbed under the upcoming statutory “pay go” legislation that is pending in the House.

Good news as far as it goes, at least if you want to get as close to universal health care coverage as possible, and certainly you can expect progressives to run with it. But it raises some questions about the differences between ‘budget neutrality’, ‘surplus’, and savings. Rather than spoil the party I’ll move that discussion under the fold.

People who have been following this debate may be scratching their heads. On Tuesday the CBO scored HR3200 as adding $1.048 billion to the deficit over ten years. Late Friday that score was changed to adding $239 billion over that same period, that is over the course of three days we somehow cut $809 billion off the cost. By Saturday night all of a sudden we now have a score of a $6 billion surplus, as close to dead even as makes no difference. So what happened? Did the bill change? Did CBO cave and change its methods? Well ‘No’ and ‘No’. It turns out that the answers CBO returns depend, as they should, on the precise nature of the question.

The first thing of note is that while these numbers are perfectly accurate in that if you score the impact of HR3200 and some accompaning legislation related to Pay-Go to be voted on soon you will get the $6 billion surplus, but under the cautious methods used by CBO this is somewhat to put the cart before the horse. Because the latest message from the CBO Director’s Blog, released early Saturday morning still puts the matter as follows:

Yesterday CBO released a preliminary analysis, conducted with the staff of the Joint Committee on Taxation (JCT), of H.R. 3200, the America’s Affordable Health Choices Act of 2009, as introduced by several House committees on July 14. Earlier this week, CBO released a preliminary report on the health insurance coverage provisions of the bill; this latest report added analysis of the other provisions.

According to CBO’s and JCT’s assessment, enacting H.R. 3200 would result in a net increase in the federal budget deficit of $239 billion over the 2010-2019 period. That estimate reflects a projected 10-year cost of the bill’s insurance coverage provisions of $1,042 billion, partly offset by net spending changes that CBO estimates would save $219 billion over the same period, and by revenue provisions that JCT estimates would increase federal revenues by about $583 billion over those 10 years.

By the end of the 10-year period, in 2019, the coverage provisions would add $202 billion to the federal deficit, CBO and JCT estimate. That increase would be partially offset by net cost savings of $50 billion and additional revenues of $86 billion, resulting in a net increase in the deficit of an estimated $65 billion.

First thing to note is that the last sentence is awkwardly phrased. That $65 billion is NOT the ten-year score but instead the score in Year 10, i.e. 2019. It basically represents the continuing cost of HR3200 going forward. But more importantly CBO is here sticking to the $239 billion figure (as bolded by me).

But whether you start from a $239 billion 10-year deficit or a $6 billion 10-year surplus this is quite a remarkeable achievement. Republicans who just days ago were crowing that the cost of providing near universal coverage was going to mean trillions added to the deficit are going to see that message stomped on. For example McConnell was reduced on Meet the Press to claiming this would cost “a quarter of a trillion dollars” perhaps hoping people are still scared by the label rather than the number. Because in the context of a $750 billion TARP package it is hard to scare someone with ‘$30 billion a year’.

Okay. So lets back off a little. Is it really fair to say that the changes to health care under HR3200 really save money compared to the status quo? Maybe yes, and maybe no, it all depends on where you are situated. The reality is that it is going to cost a bunch of medium term money to extend our current health care system in a way that covers 97% of the legal non-elderly population. On a national basis a good part of that will be offset by moving care delivery that is now non-compensated to being compensated. Just as a minor example we should be spending significantly less on collection agencies and medical bankruptcies. And billions of dollars formerly drawn from charity to run various hospitals can be directed other places. Plus we can save tens of billions of dollars if we just had every American on the right combination of blood pressure and cholesterol medication right from the git-go rather than after that heart attack or stroke. So there will be savings, and nationally there should long-term be net savings, and ultimately maybe huge net savings as we get per capita costs in line with other developed countries.

But the key point is that little to none of that is captured using CBO scoring methods. Savings to states, hospitals and individuals simply don’t register, nor do things like increased productivity from fewer lost work days. Now these kind of macro changes may well show up in CBO productions such as their Long Term Outlook but don’t register at the ground level of bill scoring.

In the cold light of day a big chunk of this is going to have to be paid for with a tax increase of around $500 billion dollars over ten years. And for the people tasked to pay it this isn’t going to save them anything over the status quo, not near term. Meaning that progressives shouldn’t get too far ahead of themselves crowing about a $6 billion net paper surplus.

I am warning about this because there is quite the excitement brewing in places like dKos among people who have confused the concepts of budget accounting and cash flow. Budgets and budget scoring are mysterious beasts and neither deficits or surpluses necessarily mean what they suggest once reported in the media.

In other words “I don’t think that $6 billion surplus means what you think it means”.