Breaking News: Supreme Court Upholds Individual Mandate

Filed Under (Health Care, U.S. Fiscal Policy) by Nolan Miller on Jun 28, 2012

Hot off the Internet, the Supreme Court has upheld the “Obamacare” individual mandate, which requires most people to buy health insurance or else pay a tax.  The ruling isn’t available yet, but I have to say that I’m really, really impressed by this decision because it shows that the Supreme Court was able to look beyond the politics of the situation and the poor argument by the administration in defense of the bill, and rule according to the law.

The argument against the mandate was that it violated the Commerce Clause of the Constitution in that it regulated economic “inactivity” rather than activity.  That is, it forced people to participate in the individual insurance market even if they didn’t want to.  The administration flubbed its defense on this point by failing to show how health insurance markets are different than most other markets, giving the Supreme Court a limiting principle that would prohibit the ruling from establishing that Congress can regulate anything it wants.

It sounds like the Supreme Court did not buy the argument that the indivual mandate was justified under the Commerce Clause.  But, in some sense this is all a red herring.  The individual mandate is a tax, plain and simple.  People who do not buy health insurance must pay a fine to the IRS.  A fine paid to the IRS is a tax.  The Democrats and the administration tried to hide the fact that this was a tax while rallying support for the bill for obvious reasons.  Nobody wanted to be seen as raising taxes, and President Obama had promised during the campaign that he would not raise taxes for middle income Americans.  But, just because the Democrats wanted to pretend that this wasn’t a tax, that doesn’t make it true.  It’s a tax. And, Congress has the right to impose taxes.

Despite the fact that the administration did not emphasize the tax aspect of PPACA’s indivual mandate in either its presetation of the bill to the public or in its defense before the Supreme Court, the Court was able to step beyond the narrative that was being fed to them and identify the key legal principle involved.

Whether you support the bill or not, I think that in a post Bush v. Gore / Citizens United world, when people are wondering whether the Supreme Court really is an impartial arbiter of the law, you have to see this as a great moment for the Court.  Hooray for them.

More after I have a chance to look at the ruling.

Making Sense of the War of Words over the Cost of Obamacare

Filed Under (Health Care, Retirement Policy, U.S. Fiscal Policy) by Jeffrey Brown on Apr 18, 2012

A war of words (and numbers) has broken out in the policy wonk world over the effect of Obamacare on the deficit.  It is important, entertaining, and confusing.  This blog attempts to bring a bit of clarity to the debate.    

 It began last week with an article, written by Charles Blahous and issued by the Mercatus Center, that argued that Obamacare increased the deficit.  The piece was discussed in the Washington Post (and on my blog) on the day it was issued.

It took almost no time at all for Paul Krugman to denounce the study.  He first began, in typically unfortunate fashion, by attacking the credibility of the author through a suggestion that Blahous was just another Koch-funded crazy who should not be believed.  He then went on to make a slightly more substantive argument about the fact that Blahous’ result rested upon a view (that Krugman called “bogus”) about what Obamacare spending should be compared with.

Blahous publicly responded, defending his position.  A few days later, former CBO Director and former OMB Director Peter Orszag joined the broadside attack against Blahous.  Peter also joined in the credibility attack and went on to also attack Blahous’ choice of baseline. 

So who is right?   The point of this post is to try to provide a bit of clarity on the issue. 

Before proceeding, I should disclose my own personal biases.  First, I consider both Chuck Blahous and Peter Orszag to be personal friends – and I believe both would agree with that assessment.  I have known and worked with both of them for over a decade.  I have an incredibly high level of respect and admiration for both Chuck and Peter as public servants, as intellectuals, and as individuals.  This is not the first time they have publicly tangled (they did so frequently over Social Security reform).  Ideologically, I almost always find myself on the same side of issues as Chuck.  But Peter is an outstanding economist, and when his views are also echoed by other highly respected economists like David Cutler of Harvard (one of the most highly respected health economists in the world, who engaged in a debate with Chuck on my Facebook page), I often find myself temporarily in a state of cognitive dissonance.  When this happens, I try to figure out the core reason for the disagreement.  Is it different values (e.g., perhaps one cares more about redistribution and the other more about economic efficiency)?  Is it different assumptions (e.g., fundamentally different views about how the politics will play out or on how future health costs will evolve?)  In such cases, two very smart people can disagree on policy, without either being “wrong.”

But this debate seems different.  This is – or at least should not be – an ideological debate.  The question here is deceptively simple.  It is a debate over a “fact.”  Either Obamacare increases the deficit, or it does not. 

So who is right?

The correct answer is “it depends.”

To understand the long-term effect of any public policy change, one must first ask the question “compared to what?”  And this is where Blahous and Krugman/Orszag differ.

The following is a FICTITIOUS conversation between Blahous and his critics.  I am trying to be clear on their views.  The material in “quotes” is taken from their writing.  The rest is my own attempt to explain their views, and I alone am responsible for any misattributions.  The Orszag quotes can be found hereThe Krugman quotes are here.  Blahous’ views can be found in his original paper, his follow-up post on Forbes, and a new post at E21.  The use of the term “Obamacare” is mine.    

Me:  “If I look at the new spending programs under Obamacare, and compare that to any spending reductions or tax increases under Obamacare, does the program increase or decrease the deficit?”

Blahous:  Over the next ten years, the increases in spending from Obamacare – Medicaid/CHIP, new exchange subsidies, making full Medicare benefit payments for an additional eight years, etc. – exceed the ways that it reduces spending or raises taxes by $346 billion through 2021.  (This is based on a CBO projection of $352 billion adjusted slightly by Chuck.)

Krugman:  This is just “another bogus attack on health reform.”

Orszag:  Indeed.  The cost savings exceed the new costs by $123 billion through 2021.   

Blahous:  But you are both ignoring the cost of extending the solvency of Medicare!  One of the effects of Obamacare is to extend our full financing commitment to Medicare through 2024.  This costs money.  Add up all the things the legislation does, and it is $346 billion more than the legislation’s cost-savings.

Orszag:  This is a “trick.”  The Blahous analysis “begins with the observation that Medicare Part A, which covers hospital inpatient care, is prohibited from making benefit payments in excess of incoming revenue once its trust fund is exhausted. He therefore argues that the health reform act is best compared to a world in which any benefit costs above incoming revenue are simply cut off after the trust-fund exhaustion date. Then, he argues that since the health-care reform act extends the life of the trust fund, it allows more Medicare benefits to be paid in the future. Presto, the law increases the deficit by raising Medicare benefits.” 

Blahous:  Look guys, this is really simple.  Without the ACA, Medicare would have been insolvent in 2016.  Under the new legislation, we are making a binding commitment to make full benefit payments through 2024.  These are real payments to real people.  How can you ignore the extra commitments through 2024?  After all, you claim the Medicare solvency extension as one of the achievements of the ACA.

Krugman:  “OK, this is crazy. Nobody, and I mean nobody, tries to assess legislation against a baseline that assumes that Medicare will just cut off millions of seniors when the current trust fund is exhausted.”

Blahous:  But under a literal interpretation of current law – which is how most budget scoring is done in Washington – a law that extends Medicare for additional years would be scored as a cost.  Do you acknowledge that under a literal change in law, this legislation puts us $346 billion deeper in the hole? 

Krugman:  The literal law does not matter.  Everyone knows that Congress is not going to allow Medicare benefits to be slashed in 2016.  To suggest these costs are a cost of Obamacare is misleading.  “In general, you almost always want to assess legislation against ‘current policy’, not ‘current law’; there are lots of things that legally are supposed to happen, but that everyone knows won’t, because new legislation will be passed to maintain popular tax cuts, sustain popular programs, and so on.

Blahous: But we have to abide by these budget rules in other contexts.  For example, let’s look at the Alternative Minimum Tax. The Congressional Budget Office counts the revenue from the AMT in its baseline budget projections, even though it knows full well that Congress is likely to continue to provide AMT relief before that revenue is collected.  Similarly with the “doc fix” in Medicare!

Orszag:  Yes, but by your logic, if we just assume that Medicare benefits are cut when the trust fund runs dry, or that Social Security benefits are cut when its trust fund runs dry a few decades later, then we do not have a long term budget problem!  Indeed, Chuck, you are “far too modest. The government is not legally allowed to issue any debt above the statutory limit, so (you) should have assumed the deficit would disappear when we reach that limit at or around the beginning of next year.”

Blahous:  Look, when you make Medicare benefit payments, real money leaves the US Treasury.   We can’t send the same check to Medicare and to Medicaid.  If you want to take credit for all the benefits of the ACA – one of which was to extend Medicare – then you have to account for the Medicare commitments as well as the Medicaid ones.  Even if you don’t think we would have allowed benefits to be suddenly cut, historically Congress has always enacted other savings to avert Medicare insolvency.  And, now that Medicare solvency is extended through 2024, the pressure on Congress to enact further savings is reduced.  So it’s not only as a matter of literal law but as a matter of practical budgetary behavior that the ACA worsens the outlook.  No matter how exactly you think things would have played out under prior law, this legislation still worsens deficits by $346 billion relative to prior law.

Krugman:  Don’t believe any of this.  The Mercatus Center is funded by the Koch brothers.  The Koch brothers, by golly!!

Blahous:  Look guys, I am trying to make a real point here, not engage in character assassination.  If carried to its logical conclusion, this is not only a departure from interpreting actual law, it is also fiscally dangerous.  You guys are basically saying that there are no prior law restraints on Medicare spending.  So every time we extend the program’s solvency, it does not cost anything!  

Me:  Okay, guys, thanks for clearing that up.  I understand it all so much better now. 

—–

So there you have it.  A knock-down, drag-out battle over budget baselines.  The debate is not over the cost of things like the coverage mandate.  It is a debate over the proper way to account for an extension of Medicare’s solvency. 

To summarize:

Relative to a world where Medicare expenditures are brought into balance with revenues within the next few years (which does appear to be required under the literal reading of current law), ACA increases Medicare expenditure and the deficit.  This is the Blahous view.   

Relative to a world in which we project current practice forward, ACA reduces Medicare expenditure and the deficit.  This is the Krugman and Orszag view. 

I think most reasonable people can understand both points.  And I don’t think this really calls for name-calling and credibility-questioning.  But in Washington, that is what passes for debate.

Most ordinary people probably think that what we should be doing is making some cuts, but not cut so deeply as to eliminate the entire Medicare shortfall.  If so, the effect on the deficit is better than if we did nothing, but worse than if we solved the problem. 

So most people probably think the “truth” (whatever that means in this context) lies somewhere in the middle.

How the Supreme Court can Reduce the Deficit: The Fiscal Impact of Ending Obamacare

Filed Under (Health Care, U.S. Fiscal Policy) by Jeffrey Brown on Apr 10, 2012

West face of the United States Supreme Court b...
(Photo credit: Wikipedia)

Last week’s U.S. news was dominated by the oral arguments before the Supreme Court of the United States (SCOTUS) on the constitutionality of the Patient Protection and Affordable Care Act (PPACA), also known more succinctly as the Affordable Care Act (ACA), or, simply, “Obamacare.”  Most of the news coverage revolved around legal issues, such as how to define a “limiting principle” that would distinguish health insurance from other goods and services.  A few of those analyses, including one by my colleague Nolan Miller at the University of Illinois, provided useful economic insights on these legal questions.

But what I have not seen much of – until now – is a careful analysis of the impact of repeal on the federal budget.  Yes, there is plenty of rhetoric around this topic, with Democrats arguing that PPACA saved money and Republicans arguing that it created a huge new entitlement.  But there has been very little careful analysis.

That changed today, when the Mercatus Center at George Mason University released a meaty new report written by Charles (“Chuck”) Blahous.  His analysis shows quite clearly that the Supreme Court now finds itself in the position of having an enormous impact on the long-run fiscal situation in the U.S.

As background, Chuck Blahous is one of two public trustees of the Social Security and Medicare trust funds, having been appointed to this post by President Barack Obama and confirmed by the U.S. Senate.  Previously, Chuck served all eight years of the G. W. Bush administration at the National Economic Council.  After spending over two decades in both the legislative and executive branches of the U.S. government, Chuck knows the ins and outs of federal budgets.  He is also widely respected on both sides of the aisle as a serious policy analyst.

In a nutshell, here is what Chuck’s careful analysis finds:

  1. PPACA is expected to increase net federal spending by more than $1.15 trillion over the next decade.
  2. PPACA is likely to add more than $340 billion, and perhaps as much as $530 billion, to federal deficits over the next decade.
  3. Despite these realities, government scorekeeping rules lead to deep confusion over the fiscal impact, and have the effect of making PPACA appear less expensive than it really is.

How can this be?  In part, the law “relies upon substantial savings already required under previous law to maintain the solvency of the Medicare Hospital Insurance (HI) Trust Fund.  These do not represent new net savings … but substitutions for spending reductions that would have occurred by law in the absence” of this act.  There are other issues at play as well.

All of this is “public,” in the sense that it has been disclosed in scoring documents by the Congressional Budget Office (CBO). But the CBO is constrained to report the effect of government tax and spending programs according to various scoring rules – even when those rules deviate substantially from the likely political or economic reality.  Skilled politicians have learned to use these scoring rules to their advantage.

As Chuck points out in his paper:

“A full understanding of the ACA’s budget effects requires appreciation of the distinction between two important points:

  1. CBO found that the ACAD would reduce federal deficits when a specific scoring convention was applied;
  2. The same analysis shows implicitly that the ACA would substantially increase federal deficits relative to previous law.

The paper is over 50 pages in length (including the helpful Q&A in the appendix), but is well worth a read if you want to know the details behind the calculations.

But if you don’t have time to read it, here is the bottom-line: “Taken as a whole, the enactment of the ACA has substantially worsened a dire federal fiscal outlook.  The ACA both increases a federal commitment to health care spending that was already unsustainable under prior law and would exacerbate projected federal deficits relative to prior law.  This is an unambiguous conclusion …”

Were the Supreme Court to strike down all or part of this Act, we should view it as an opportunity to revisit health care reform in a way that reduces, not increases, public spending.

PPACA goes to SCOTUS: Health reform appears to be in danger.

Filed Under (Health Care) by Nolan Miller on Mar 28, 2012

The argument over the fate of the Patient Protection and Affordable Care Act, a.k.a “Obamacare,” is taking place before the United States Supreme Court this week.  Three questions are being considered.  The first is a technical question regarding whether the challenge to the law can be heard now or if it has to wait until someone actually pays the penalty the law imposes.  Perhaps this is an interesting legal matter, but there isn’t much economics there.  The second question is whether the individual mandate, which requires most Americans to buy health insurance or face a penalty, is a constitutional exercise of Congress’s power to regulate interstate commerce or not.  This is the key question, since, if the justices decide that Congress overstepped its powers in passing the law, the part of the law that results in nearly universal health insurance could be struck down.  The third question is, if the individual mandate is struck down, how much of the rest of the law will go along with it.

As I said, the second question is the key, and SCOTUS heard arguments on this question yesterday.  By all accounts, the administration bumbled it.  Here’s an excerpt from the New York Times:

But several of the more conservative justices seemed unpersuaded that a ruling to uphold the law could be a limited one. Justice Alito said the market for burial services had features similar to the one for health care. Chief Justice Roberts asked why the government could not require people to buy cellphones to use to call emergency service providers.

Justice Scalia discussed the universal need to eat.

“Everybody has to buy food sooner or later, so you define the market as food,” he said. “Therefore, everybody is in the market. Therefore, you can make people buy broccoli.”

Justice Alito asked Mr. Verrilli to “express your limiting principle as succinctly as you possibly can.”

So, the justices wanted to know if they allow the individual mandate to stand, what won’t Congress be able to regulate.  The administration’s response:

Instead of a brisk summary of why a ruling upholding law would not have intolerably broad consequences, Mr. Verrilli gave a convoluted answer. First of all, he said, Congress has the authority to enact a comprehensive response to a national economic crisis, and the mandate should be sustained as part of that response.

He added: “Congress can regulate the method of payment by imposing an insurance requirement in advance of the time in which the service is consumed when the class to which that requirement applies either is or virtually most certain to be in that market when the timing of one’s entry into that market and what you will need when you enter that market is uncertain and when you will get the care in that market, whether you can afford to pay for it or not and shift costs to other market participants.”

Huh?

Here’s what they should have said.  It is true that people need to buy burial services and food, but these markets differ from health care in that there is no threat of “adverse selection” as there is in health insurance, and adverse selection has the potential to make it impossible for individuals to purchase insurance at reasonable rates (i.e., the sick pay less than their expected cost of care and the rich pay more) unless that market is regulated.

Take the market for broccoli or burial services.  As the justices point out, it is true that everybody needs food or burial, eventually.  However, my ability to consume food or be buried does not depend in any crucial way on what others do.  In economic terms, we say that there is no “market failure” here.

Now, take the market for health care services.  Suppose there are two kinds of people.  Healthy people have expected annual health care costs of $1000, while sick people have expected annual health care costs of $11,000.  If there are equal numbers of healthy and sick people, then the average cost of caring for all people is (1000 + 11000)/2 = $6000.  Next, assume that individuals know whether they are healthy or sick, but health insurers don’t know whether a person is healthy or sick, or, as is done in the new health care law, are prohibited from using this information to charge different prices to healthy and sick people. 

Suppose the insurer charges a price of $6000.  If everyone purchased this insurance, the insurer would break even.  But, a person who expects to have only $1000 healthcare costs would not be willing to purchase this coverage, since by doing so they spend $6000 for something worth $1000.  A person who expects to so spend $11,000 on health care would be willing to buy coverage.  But, if the insurer expects that only sick people will buy the insurance, it will not be willing to sell it at a price of $6000, since by doing so it would lose $5000 on each policy.

In this example, the only sustainable outcome is where the insurer charges $11,000 and only the sick people buy insurance.  But, at this price, the sick people are no better off than they would be without insurance, and the insurer earns zero profit.  So, nobody benefits from this market.  In cases like these, we say that adverse selection (the fact that those who value a product the most are likely to be the most costly to serve) has led to a market failure.  In this case, the fact that the healthy are unwilling to purchase health insurance voluntarily makes it impossible for the sick to purchase it at a reasonable price.  It is this interdependence that makes health care markets and broccoli markets fundamentally different.

This market failure could be addressed by mandating that everybody had to buy insurance, as is done in PPACA.  In this case, the price of insurance would be $6000.  Firms would just break even, sick people would benefit from insurance, and healthy people would be forced to subsidize the sick against their will.

Rather than focus on the distinction made above, the administration has argued that the key distinction between health care and other markets is that there is a degree of uncertainty about future use in health care markets that is not present in other markets.  This case is empirically weak, and more importantly, not a market failure that requires government intervention.  They have also argued that even those who choose not to purchase health insurance often consume health care, and in many cases these costs are passed onto others.  This argument, however, would seem to fail the broccoli test: if not eating broccoli today means I’ll be less healthy and more likely to collect government benefits in the future, then, by extension, the government should be able to force me to eat broccoli.  I don’t think the administration wants to be making this argument (at least not today, in front of the Supreme Court).

The example I discussed above illustrates how the PPACA provisions that prohibit charging higher prices to sick individuals and the individual mandate work together.  The result is a situation where everyone is covered by private insurance.  However, there is clear redistribution from the healthy to the sick.  This may be desirable from a social perspective, and somewhere in the administration’s convoluted argument is the idea that the healthy are always at risk of becoming sick.  Whether you favor PPACA on social grounds depends on your individual preference for redistribution and, even if you are in favor of increased redistribution, whether you think intervening in health insurance markets is the best way to do it.  However, one thing that is indisputable is that health insurance markets are different from broccoli and burial markets.   The administration’s failure to effectively show that there is a bright line between the market for health insurance and broccoli might result in PPACA being overturned.

The one where I agree with Newt Gingrich!

Filed Under (U.S. Fiscal Policy) by Nolan Miller on Jun 2, 2011

It is unlikely that there will be a lot of blogs where I agree with Newt Gingrich because I see economic policy as one of weighing costs and benefits, which tends to avoid extreme positions of the sort that the former Speaker as well as his counterparts on the left tend to advocate.  But, last week he came out against Paul Ryan’s plan to replace Medicare with a voucher system (you can call it premium support if you want, but it’s still a voucher system) as too great a change in the current system, saying “I am against Obamacare imposing radical change, and I would be against a conservative imposing radical change.”  I have to say that I agree with Gingrich the moderate on this point.

The Ryan plan will replace the current Medicare system — where individuals go to virtually any provider they want, receive whatever treatment that provider chooses, and present the government with the bill – with one where seniors are given vouchers from the government to purchase health insurance plans from private insurers who will then manage individuals’ care in much the same way as HMOs manage care for younger people.  (See a nice discussion of the Ryan plan from the Kaiser Family Foundation, here.)  The insurance plans, Ryan argues, will have an incentive to reduce costs, since they are not paid for providing extra treatment, and to increase quality, since plans that provide higher quality will attract more customers.  The virtues of the market will work to increase quality and decrease cost, and in order to reinforce that the value of the vouchers will be pegged to overall inflation rather than medical cost inflation.  This will, by definition, slow the rate of growth of health care cost, or at least the portion of the bill that the government pays.

I agree with the sentiments expressed in the Ryan plan.  Something has to be done to rein in cost, and promoting competition seems to be a good way to go.  However, there are a lot of open questions about whether such a plan could really be implemented (just as there are with whether the insurance exchanges in the Patient Protection and Affordable Care Act could really be implemented).  To begin, markets for insurance with a large proportion of high-risk people are problematic.  Insurers will have an incentive to try to select only the best risks, leaving those at higher risk to face higher prices and lower quality plans.  There are methods of addressing this through a process known as “risk adjustment,” where the government increases the size of the vouchers for sicker people.  The problem, however, is that we just aren’t very good at predicting who will be high cost and who will be low.  The “state of the art” in risk adjustment is not where it needs to be to make the Ryan plan work.

A second concern with the Ryan plan is that one of the benefits of the Medicare system is that it features lower administrative costs than private plans.  By moving people from Medicare to private plans, the Ryan plan is actually expected to increase the overall cost of medical care.  This is especially true of risk adjustment is incomplete and private insurers in the Medicare market compete to select and retain good risks as they do in the current market for younger customers.  For those who are more worried about the size of government than the cost of health care, this may be a tradeoff worth making. But, it is unclear whether the Ryan plan will succeed in lowering the overall cost of health care.  (To be fair, I’m not sure we have any idea how to do it.)

Fortunately, there is a middle way that can move us in the direction of the Ryan plan without relying on a market that doesn’t work and without pushing people into a private sector that may be inherently less efficient than traditional Medicare.  The approach leverages Medicare Advantage, the current system where Medicare recipients have the option of choosing to receive health care from private insurers rather than participating in traditional Medicare.  Like the Ryan plan, Medicare Advantage plans are paid a fixed amount for every person they enroll, giving them an incentive to keep cost low and quality high.  However, unlike the Ryan plan, seniors always have the option to choose to participate in the traditional Medicare plan.

On the bright side, Medicare Advantage plans do a pretty good job of providing seniors with health care, often including benefits beyond those in traditional Medicare at little or no additional cost to seniors.  On the other hand, due to a flawed system through which payments to Medicare Advantage plans are set by the government, the government currently pays on average more per enrollee in Medicare Advantage than that person would cost in traditional Medicare.

So, how do we save Medicare?  Easy.  First, fix the system that sets payments to Medicare Advantage plans.  One mechanism that would help is to move to a competitive bidding system, where government payments to plans are based on the lowest bid by any qualifying plan.  We might even restrict the number of plans that could operate in a given area, so that plans would have an incentive to bid aggressively in order to get into the market.  Second, encourage competition by making it easy for participants to compare and select plans.  Set and enforce quality standards so that seniors know that any eligible plan will provide at least a minimum level of benefit.

The third step is, once the Medicare Advantage market is up and running, begin to provide individuals with incentives to choose managed plans when they are a more efficient means of care.  In some areas, especially sparsely populated ones, it may never be more efficient to run an HMO-style plan that traditional Medicare due to high administrative costs.  In this case, people will choose to remain in the traditional plan.  However, in more densely populated areas where efficient delivery networks can be assembled, managed plans may do a better job.  Traditional Medicare would always remain an option, but to the extent that it is a more expensive method of delivering care than the managed plans, it would have a higher cost.  This is not unlike the choices offered by many large employers (including the State of Illinois), where there are HMO options as well as more expensive “open network” options.  Additional subsidies could also be offered to people who are poor or particularly sick.

In the end, we’ll end up somewhere a lot like where the Ryan plan is taking us – with traditional Medicare being replaced by managed care organizations as the predominant form of providing care to the elderly — with a couple of key differences.  First, payments to plans will be set via competitive bidding to allow market forces to determine how much the government should be paying for health care rather than a pre-determined formula.  Second, traditional Medicare will always remain as a backstop for those who are unable or unwilling to receive adequate care through the managed care system.

Certainly I haven’t said enough to establish whether this kind of plan could actually work or not.  But what I like about it is that without the “radical change” that has Speaker Gingrich so rightly concerned.  If it doesn’t work, we can always back off by lowering the price of traditional Medicare while we think about what happened and learn from our mistakes.  The Ryan plan lacks such a safety valve.  So, if we don’t get this huge policy change right the first time, there could be seriously bad consequences for years to come.  And, that we are unlikely to get this right the first time is probably the one thing that everyone involved in the discussion will agree on.

This just in: Both Sides of Health Reform Debate Twist Facts to Support Own View. Public Shocked!

Filed Under (Health Care, U.S. Fiscal Policy) by Nolan Miller on Jan 25, 2011

Of course, we all knew this.  But, the Washington Post had a couple of interesting op-ed pieces last week that really drove home the point.  The fun part was that the two pieces, written by Charles Krauthammer and Eugene Robinson, appeared next to each other on my computer screen and exposed the disingenuousness of both the Democratic and Republican positions on the financial aspects of the Patient Protection and Affordable Care Act, aka “ObamaCare,” or, more neutrally, PPACA.

Let’s begin with Robinson, who takes aim at the Republican’s self-serving and somewhat hypocritical approach to the numbers in promoting their repeal of PPACA through the ominously-named “Repealing the Job-Killing Health Care Law Act.”  Now, the Republicans painted themselves into a bit of a corner on this one from the get-go.  Swept into the House majority on a promise to decrease the deficit, they were faced with the fact that PPACA, at least on paper, lowers the deficit over the next 10 years.  The fist bit of Republican tap dancing around this point came earlier this month when the new majority enacted new rules in the House specifying that every new law had to explain how any new spending it proposed would be offset by an equivalent cost reduction.  Deficits, after all, are bad.  This “cut-as-you-go” rule, however, specifically exempted PPACA repeal from this requirement.  So, I guess deficits aren’t all that bad after all.

According to Mr. Robinson, the Republicans, faced with the CBO’s projection that repealing PPACA would increase the deficit by $143 Billion over the next decade, took the position that the CBO “score” for the bill was disconnected from reality.  According to House Budget Committee Chairman Paul Ryan, “CBO scores what is put in front of them – and what Democrats put in front of them last year was legislation packed with smoke and mirrors to hide the impact of trillions of dollars in new spending.”  On the other hand, Republicans are putting a lot of faith in the CBO when they declare PPACA to be “job-killing,” saying it would eliminate 650,000 jobs.  But, according to Robinson:

“One problem, though: The CBO analysis contains no such figure. It’s an extrapolation of a rough estimate of an anticipated effect that no reasonable person would describe as “job-killing.” What the budget office actually said is that there are people who would like to withdraw from the workforce – sometimes because of a chronic medical condition – but who feel compelled to continue working so they can keep their health insurance. Once the reforms take effect, these individuals will have new options. That’s where the “lost” jobs supposedly come from.”

So, Republicans are not above picking and choosing which numbers to ignore and which to exaggerate to make their point.  On to the Democrats.

Krauthammer takes on the Democrats’ cooking the numbers in the original PPACA bill in order to make it look like it reduced the deficit when it will actually add to the deficit (i.e., new expenditures will be greater than new revenues in the long run).  Now, cooking the CBO’s score is a time-honored practice in Washington.  The key is this.  The CBO is the most gullible body in the government.  By law, they are required to take whatever Congress puts into a bill and score it as if it is actually going to happen.  So, if Congress tells them that they are going to spend $50 billion on a bridge to Hawaii and pay for it by taking all of Bill Gates’ money, CBO will come back and say “awesome.  That will reduce the deficit by $4 billion.”  As I said, this is nothing new.  Remember how the Bush Tax Cuts were scheduled to expire at the end of last year?  Same deal.

So, to cook the books on PPACA, the Democrats did the following.  The new taxes and revenue sources for health care were scheduled to start coming online almost immediately, while the new expenditures were scheduled to start much later.  So, according to Mr. Krauthammer, “the entitlement [PPACA]  creates – government-subsidized health insurance for 32 million Americans – doesn’t kick in until 2014. That was deliberately designed so any projection for this decade would cover only six years of expenditures – while that same 10-year projection would capture 10 years of revenue. With 10 years of money inflow vs. six years of outflow, the result is a positive – i.e., deficit-reducing – number. Surprise.”  And, Krauthammer argues, PPACA does the same with its new long-term care insurance program, where it starts collecting premiums immediately but doesn’t pay anything out for 10 years, resulting in a surplus, at least on paper, according to the rules.

Krauthammer also makes the additional point that although PPACA is supposed to decrease the budget by $230 billion (the numbers differ between the two articles), the way it does it is through offsetting $540 billion in new spending by $770 billion in new taxes.  This “radical increase in spending, topped by an even more radical increase in taxes” is probably not what most people had in mind when they heard that the bill reduced the deficit by $230 billion, and certainly much different than simply cutting $230 billion in government spending.  But, that’s perhaps a topic for a different day.

So, both sides are twisting the numbers and sloganeering.  Am I shocked like Claude Rains in Casablanca?  Well, I guess I am, which is to say, not shocked at all.  Am I frustrated?  Definitely, because there are real problems in health care that have to be addressed.  Even if you are a fan of PPACA, you have to admit that it was at most a first step toward reforming health care in this country.  Real progress is going to require cooperation on coming up with solutions.  As long as both sides are deliberately twisting the facts to score political points, we aren’t going to make progress.

Despite the Republican’s grandstanding on the issue of repealing PPACA, it’s not going to happen.  There is a glimmer of hope.  Along with the political theater, Republican leaders in the House are instructing committees to get to work on legislation to replace PPACA.  Without Democratic support, such legislation will never become law. But, maybe, just maybe, if the two work together, they can come up with something that actually improves on PPACA and begins to work on the excessive growth rate of health care costs in this country, which is what I and many others have said is the real ticking fiscal time bomb facing this country.