CBO in the House

by Tevi Troy  •  Oct 29, 2009 at 5:59 pm
Cross-posted from National Review Online: Critical Condition

http://www.tevitroy.org/2009/10/cbo-in-the-house

CBO's just-released score of the new House health-care bill is far more useful and readable than the propaganda summaries issued by the House Democrats this morning. The key paragraph is, as always, the summary portion in the letter from CBO director Doug Elmendorf to Ways and Means chairman Charlie Rangel, which states that the bill would:

establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance "exchanges" through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicare's payment rates for most services (relative to the growth rates projected under current law); impose an income tax surcharge on high-income individuals; and make various other changes to the federal tax code, Medicaid, Medicare, and other programs.

If you think that this is the right approach to health care – mandates to purchase insurance, increased taxes, "a gross total of $1,055 billion in subsidies provided through the exchanges," and a heavy reliance on Medicaid — then this may be the bill for you. As I noted this morning, though, there will likely be a robust coalition that does not think this is the way to go.

In addition to these macro concerns, there are two key additional problems:

First, the bill's reliance on Medicaid would increase the pressure on financially strapped states. As CBO puts it, "CBO estimates that state spending on Medicaid would increase on net by about $34 billion over the 2010–2019 period."

States will strongly object to the way that this new plan leans heavily on Medicaid to cover people rather than trying to get more people covered by private insurance. There is, of course, a reason for this approach. According to CBO:

The estimated costs of providing subsidies through the new insurance exchanges are now lower for several reasons: the larger expansion of Medicaid means that fewer people would be eligible for coverage through the exchanges;

This Medicaid expansion has two effects. First, it increases the number of people dependent on government-provided care via Medicaid, but it also costs less money than helping people get private coverage, which people would presumably prefer over Medicaid.

The second big problem is that this bill — along with the Senate bill — unrealistically ignores the cost of fixing physician payments. Per CBO:

The current proposal does not include any changes to the sustainable growth rate (SGR) mechanism for setting Medicare's payment rates for physicians' services. A provision of H.R. 3200 that would have restructured that mechanism added about $245 billion to CBO's estimate of the net cost of that bill.

As we saw from the recent Senate vote on this subject, even Democratic moderates balked at this gimmick of fixing physician payments separately from the overall health bill, as doing so neglects a $245 billion cost. CBO notes how unrealistic it is to assume that scheduled physician cuts will take place, saying:

The bill would put into effect (or leave in effect) a number of procedures that might be difficult to maintain over a long period of time. It would leave in place the 21 percent reduction in the payment rates for physicians currently scheduled for 2010.

This is only one of a number of areas where the bill calls for policies that, as CBO gently put it, "might be difficult to maintain." It's likely that lengthier flyspecking of the new bill in the days ahead will reveal even more such problem areas.

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