Posted by: Jeff | September 16, 2009

Yes, Health Care Reform Is Fiscally Responsible

I had a back-and-forth recently with a friend, an uber-conservative, concerning the cost of health care reform. He was reacting to Obama’s speech, calling it (and I’m paraphrasing a bit here) a bunch of happy horse-shit that was long on promises and short on the nults-and-bolts of how it would be paid for, and would probably lead to the government “taxing the hell” out of the country. I figured Obama was being too optimistic in predicting that his plan would be deficit neutral, and that it would probably be underfunded by $200 or $300 billion. This got me whacked for giving Obama and the Democrats a pass on deficit spending while raking Bush and the Republicans over the coals for it.

Well, the plan that Obama outlined in that speech was pretty close to the plan that Max Baucus has been grinding out in the Senate Finance Committee. They both come in around $900 billion; both include health insurance exchanges, new regulations preventing denial of coverage due to pre-existing conditions and so forth; both have new subsidies, an individual mandate, and both attempt to address Republicans’ concerns on tort reform and the possibility of illegal immigrants slipping into the system. The only difference is that Obama’s plan included a public option and Baucus’ doesn’t.

I bring all this up because Baucus and the Finance Committee just released the finished version of their bill today, and it has received its preliminary score from the Congressional Budget Office. And you know what? Even I was giving Obama and the Democrats too little credit.

According to CBO and JCT’s assessment, enacting the Chairman’s proposal would result in a net reduction in federal budget deficits of $49 billion over the 2010–2019 period. The estimate includes a projected net cost of $500 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $774 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $215 billion in revenues from the excise tax on high-premium insurance plans and $59 billion in revenues from other sources. The net cost of the coverage expansions would be more than offset by other spending changes that CBO estimates would save $409 billion over the 10 years, and by other tax provisions that JCT and CBO estimate would increase federal revenues by $139 billion over the same period.

Everyone got that? If enacted, the Baucus health care reform bill would reduce the federal deficit by almost $50 billion over the next ten years. It’s not even deficit neutral, it’s better. The CBO further estimates that by 2019 this bill would cover 29 million new people, cutting the number of nonelderly uninsured in this country by more than half. And while they acknowledge that further predictions beyond 2019 are extremely imprecise by nature, they expect the cost savings and added revenue from the bill to continue to out-pace the increasing cost of the coverage expansion.

Meanwhile, as of mid-July, the far more liberal health care reform bill in the House, H.R. 3200, had a price tag of just over $1 trillion and was estimated by the CBO to add $239 billion to the deficit by 2019. That’s actually a worse-case scenario, as the number may be reduced by other factors. (For the curious and the bored, more detailed versions of the CBO scores for Baucus’ bill and for H.R. 3200 are available here and here, respectively.) In the name of partisan score-keeping – and yes, I’m a big fan of partisan score-keeping in this regard, given how hard the Republicans try to sell themselves as fiscal conservatives and tar the Democrats by extension as drunk-sailor spenders – compare both these bills with the Republicans’ signature health care reform of the Bush years, Medicare Part D, passed in 2003. That reform, when it was enacted, was estimated to add over $500 billion to the deficit, more than twice that of H.R. 3200. And it was far more modest in its systemic scope. To my knowledge, everyone howling about the current reform’s potential deficit additions still supported Bush and his party in the ’04 elections.

The last wrinkle to add is that the CBO has a history of overestimating the costs and underestimating the savings involved in changes to the health care system. Even Medicare Part D is doing better than was originally predicted. That’s not necessarily a bad thing on the part of the Congressional Budget Office, it’s just a result of the cautious way they do business. There are a lot of unknowns in all these questions, so there’s a lot of wisdom in erring on the side of pessimism. Also, the health care reform currently being considered is more far reaching than past changes, so the same factors which resulted in higher savings may not show up. Still, there is a pattern there, and it’s worth keeping in mind.

So, in conclusion, what’s the take-away from all this? Simple. As of September 16, 2009, the conservatives’ “fiscal responsibility” argument against Obama and the Democrats’ proposed health care reform is officially a joke. Assuming it wasn’t already.

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