the real cost

[Azazello1313]

http://www.nytimes.com/2010/03/21/opinion/21holtz-eakin.html

 

ON Thursday, the Congressional Budget Office reported that, if enacted, the latest health care reform legislation would, over the next 10 years, cost about $950 billion, but because it would raise some revenues and lower some costs, it would also lower federal deficits by $138 billion. In other words, a bill that would set up two new entitlement spending programs — health insurance subsidies and long-term health care benefits — would actually improve the nation’s bottom line.

 

Could this really be true? How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?

 

The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.

 

In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.

 

Gimmick No. 1 is the way the bill front-loads revenues and backloads spending. That is, the taxes and fees it calls for are set to begin immediately, but its new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only 6 years of spending.

 

Even worse, some costs are left out entirely. To operate the new programs over the first 10 years, future Congresses would need to vote for $114 billion in additional annual spending. But this so-called discretionary spending is excluded from the Congressional Budget Office’s tabulation.

 

Consider, too, the fate of the $70 billion in premiums expected to be raised in the first 10 years for the legislation’s new long-term health care insurance program. This money is counted as deficit reduction, but the benefits it is intended to finance are assumed not to materialize in the first 10 years, so they appear nowhere in the cost of the legislation.

 

Another vivid example of how the legislation manipulates revenues is the provision to have corporations deposit $8 billion in higher estimated tax payments in 2014, thereby meeting fiscal targets for the first five years. But since the corporations’ actual taxes would be unchanged, the money would need to be refunded the next year. The net effect is simply to shift dollars from 2015 to 2014.

 

In addition to this accounting sleight of hand, the legislation would blithely rob Peter to pay Paul. For example, it would use $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are expected to rise as employers shift from paying for health insurance to paying higher wages. But if workers have higher wages, they will also qualify for increased Social Security benefits when they retire. So the extra money raised from payroll taxes is already spoken for. (Indeed, it is unlikely to be enough to keep Social Security solvent.) It cannot be used for lowering the deficit.

 

A government takeover of all federally financed student loans — which obviously has nothing to do with health care — is rolled into the bill because it is expected to generate $19 billion in deficit reduction.

 

Finally, in perhaps the most amazing bit of unrealistic accounting, the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies. But Medicare is already bleeding red ink, and the health care bill has no reforms that would enable the program to operate more cheaply in the future. Instead, Congress is likely to continue to regularly override scheduled cuts in payments to Medicare doctors and other providers.

 

Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years. And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see.

 

The bottom line is that Congress would spend a lot more; steal funds from education, Social Security and long-term care to cover the gap; and promise that future Congresses will make up for it by taxing more and spending less.

 

The stakes could not be higher. As documented in another recent budget office analysis, the federal deficit is already expected to exceed at least $700 billion every year over the next decade, doubling the national debt to more than $20 trillion. By 2020, the federal deficit — the amount the government must borrow to meet its expenses — is projected to be $1.2 trillion, $900 billion of which represents interest on previous debt.

 

The health care legislation would only increase this crushing debt. It is a clear indication that Congress does not realize the urgency of putting America’s fiscal house in order.

 

also, consider this table.

[Azazello1313]

this is excellent

 

Well, it appears certain that the healthcare reform bill will become law. One thing I have been struck by in watching this debate is how strident it has been, among both proponents and opponents of the legislation. As a weak-willed eclectic, I can see arguments on both sides. Life is full of tradeoffs, and so most issues strike me as involving shades of grey rather than being black and white. As a result, I find it hard to envision the people I disagree with as demons.

 

Arthur Okun said the big tradeoff in economics is between equality and efficiency. The health reform bill offers more equality (expanded insurance, more redistribution) and less efficiency (higher marginal tax rates). Whether you think this is a good or bad choice to make, it should not be hard to see the other point of view.

 

I like to think of the big tradeoff as being between community and liberty. From this perspective, the health reform bill offers more community (all Americans get health insurance, regulated by a centralized authority) and less liberty (insurance mandates, higher taxes). Once again, regardless of whether you are more communitarian or libertarian, a reasonable person should be able to understand the opposite vantagepoint.

 

In the end, while I understood the arguments in favor of the bill, I could not support it. In part, that is because I am generally more of a libertarian than a communitarian. In addition, I could not help but fear that the legislation will add to the fiscal burden we are leaving to future generations. Some economists (such as my Harvard colleague David Cutler) think there are great cost savings in the bill. I hope he is right, but I am skeptical. Some people say the Congressional Budget Office gave the legislation a clean bill of health regarding its fiscal impact. I believe that is completely wrong, for several reasons (click here, here, and here). My judgment is that this health bill adds significantly to our long-term fiscal problems.

 

The Obama administration's political philosophy is more egalitarian and more communitarian than mine. Their spending programs require much higher taxes than we have now and, indeed, much higher taxes than they have had the temerity to propose. Here is the question I have been wondering about: How long can the President wait before he comes clean with the American people and explains how high taxes needs to rise to pay for his vision of government?

[cre8tiff]

I would believe the CBO.

 

It is thier job to assess these things 24/7, not just when asked by thier editors, or when blogging.

[bushwacked]

I would believe the CBO.

 

It is thier job to assess these things 24/7, not just when asked by thier editors, or when blogging.

 

No, no, you only put weight on CBO projections when they are anti-Obama, otherwise there are hundrerds of right-wing bloggers who can project better than the CBO. It's the Az way.

[Azazello1313]

would you twits care to actually address the arguments posted? here, I'll try to helo you by singling out some key quotes:

 

How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?

 

The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out.

 

Why does CBO assume no change in GDP? It is not because the CBO staffers necessarily believe that result. Rather, it is just one of the conventions of budget scoring.

 

hell, even the CBO itself agrees:

The reconciliation proposal and H.R. 3590 would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.

Under the legislation, CBO expects that Medicare spending would increase significantly more slowly during the next two decades than it has increased during the past two decades (per beneficiary, after adjusting for inflation). It is unclear whether such a reduction in the growth rate of spending could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care. The long-term budgetary impact could be quite different if key provisions of the legislation were ultimately changed or not fully implemented.

 

that's about as strongly as the CBO can come out and say that this is a pipe dream.

[Azazello1313]

also, any thoughts about this table.

[Azazello1313]

The controversy of the moment is the procedural precedent in the health care bill. No comment on that.

 

What troubles me is the substantive precedent of using future cuts in Medicare benefits as a funding source. This is really weird, if you think about it.

 

Imagine that your crazy uncle Fred had bought a dozen cars on credit. As a result, he faces car payments far in excess of what he can afford. He comes to you and says he has a plan that in a couple of years will reduce his car payments by a few thousand dollars. "Now I have the money for a down payment on a boat!" he exclaims, as he runs off to the boat dealer.

 

The equivalent is for Congress to treat future cuts in Medicare as if they were a newfound source of wealth to be tapped. Once they adopt this precedent, they can increase spending on whatever they want, in unlimited amounts, while claiming deficit neutrality. Future Medicare spending is so high that you can always come up with cuts, as long as they deferred.

 

CBO's Doug Elmendorf discusses the use of promised future cuts in budget scoring, and it is evident that he is queasy about it. I think it sets a very dangerous precedent. Even if health care reform passes, I hope that Congress does something to close this loophole in its budget scoring procedures. If I were the Republicans, I would introduce a bill that bans the use of promised future cuts as a financing mechanism.

 

http://econlog.econlib.org/archives/2010/0...ubstantive.html

Edited March 22, 2010 by Azazello1313

[westvirginia]

Have to agree here - the truth is this is nothing about cost and the gov't knew it???

 

trckers

[The Wolf]

Anyone else think that the revolution is coming? Not a left wing / right wing thing but a movement to toss out all politicians and start over?

[Ursa Majoris]

Anyone else think that the revolution is coming? Not a left wing / right wing thing but a movement to toss out all politicians and start over?

No

[The Wolf]

No

 

Not at all, huh? I really avoid the political discussions like the plague but absolutely notice the frustrations of both sides. Why does there have to be sides? Why can't government do what is best for the people...for all of us? If something like this plan is so polarizing, why not back down rather than ram it thru because that's what one party wants to do? On the flip side, why should the other party oppose it simply because one party wants it?

 

I'm sorry, but NONE of these politicians work for Americans. None of them. And until the voters realize this and demand change, we will get more of the same.

Edited March 22, 2010 by The Wolf

[Ursa Majoris]

Not at all, huh? I really avoid the political discussions like the plague but absolutely notice the frustrations of both sides. Why does there have to be sides? Why can't government do what is best for the people...for all of us? If something like this plan is so polarizing, why not back down rather than ram it thru because that's what one party wants to do? On the flip side, why should the other party oppose it simply because one party wants it?

 

I'm sorry, but NONE of these politicians work for Americans. None of them. And until the voters realize this and demand change, we will get more of the same.

The issue is simple and can be summed up in a few points:

 

 

• It costs an arm and a leg to be elected / re-elected and the money comes from those who want you to take certain actions. These people form a tiny minority of the voting public. When their guy wins, there's payback required and it comes in the form of pork or bills slanted to the big donors.

• Lots of people outside politics are making enormous amounts of money from it. Mostly these are radio and TV outlets and they have a very deep interest in making sure politics is as confrontational as possible in order to keep ratings up. Anger sells.

• The public (in the broadest sense) isn't paying much attention, as can be seen from the 60% turnout in most presidential elections. This apathy allows the truly committed a much easier ride.

• The primary system means that candidates are increasingly selected on their ideological purity rather than their ability. Better for the truly committed to have a puppet in place than an independent thinker.

• Campaigning now takes up fully half (and even more) of a politicians time and, like everyone else, they only have 24 hours in a day. Good politicians are balking at this colossal waste of time and energy. Not only that, we go through this circus far too often.

• Politicians are paid peanuts considering their responsibilities so is it any wonder their main aim is to secure themselves a position elsewhere in case of electoral defeat?

• Notwithstanding the previous point, district gerrymandering has reached such a point that only 20% of districts (if that) are in the running for an incumbent change on each election cycle. The rest have been twisted into pretzel shapes so that they are as secure as they can be.

 

[bpwallace49]

http://www.nytimes.com/2010/03/21/opinion/21holtz-eakin.html

 

 

 

also, consider this table.

 

So the "real cost" assumes that every assumption in the bill is completely false? AZ I get it if you dont like the bill, and/or cherry pick CBO estimates when it supports your argument and dismiss them when they dont support your "side". Is there ANY base level of assumptions you make that hold constant from issue to issue?

 

you can attack ANY legislation if you say the premise and assumptions are false. If they turn out to be true, does this make the legislation good?

 

Az I agree that a LOT needs to be done to work on cost containment to make this bill feasible in the long term. Just like Paul Ryan and his Roadmap that hinges on massive changes to the US Tax code, this bill is built on expectations that will be difficult to meet.

[Azazello1313]

I'm sure those rosy estimates will work out just like they always have

 

will nobody even TRY to respond to points like this one?

 

The equivalent is for Congress to treat future cuts in Medicare as if they were a newfound source of wealth to be tapped. Once they adopt this precedent, they can increase spending on whatever they want, in unlimited amounts, while claiming deficit neutrality. Future Medicare spending is so high that you can always come up with cuts, as long as they deferred.

 

CBO's Doug Elmendorf discusses the use of promised future cuts in budget scoring, and it is evident that he is queasy about it. I think it sets a very dangerous precedent. Even if health care reform passes, I hope that Congress does something to close this loophole in its budget scoring procedures.

 

so basically, you have a bill you want to pass that has $950 billion in new spending but only $500 billion in new taxes? just attach a rider saying you're going to cut medicare by $500 billion! then you can say "CBO says our bill reduces the deficit". of course, you don't actually have to follow through with those cuts, and we all know you're not going to. but CBO can't call you on it, because "CBO’s responsibility to the Congress is to estimate the effects of proposals as written and not to forecast future legislation." and when somebody else calls you on it, you just say "but CBO says it reduces the deficit!"

[bushwacked]

I'm sure those rosy estimates will work out just like they always have

 

according to the CBO, obama's budget will double the publicly held debt in 5 years, and triple it in 10 years.

 

the ol' "the CBO is too pessimistic -- my numbers are the real numbers" ploy.

 

it's not me who sees it that way, it's the CBO.

 

 

Got it.

[Azazello1313]

Got it.

 

are you capable of actually responding to the point? or seeing that I am not in any way blasting the CBO, just pointing out the reality of what their "score" on this bill really means? if you're congress, and you're passing a bill, all you have to do is promise whatever number you need in future medicare cuts, and the CBO has to say your bill is deficit-reducing. and that is exactly what is going on here. here is the CBO discussing the issue themselves:

 

Focusing on another area of concern, some observers argue that CBO’s estimates are unrealistic because the Congress will not allow the Medicare spending cuts and future tax increases in the proposals to take effect. CBO’s responsibility to the Congress is to estimate the effects of proposals as written and not to forecast future legislation. However, the agency does try to provide information about the consequences of implementing proposals. For example, our cost estimate for the bill taken up by the Senate in December and our estimate for the House bill last October noted that inflation-adjusted Medicare spending per beneficiary would slow sharply under those proposals. We estimated that growth in such spending under the Senate bill would drop from about 4 percent per year for the past two decades to roughly 2 percent per year for the next two decades; whether such a reduction could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear. In addition, CBO’s estimates have shown that relaxing previously enacted constraints on Medicare spending can add significantly to long-run budget deficits, as we wrote in answer to a question last fall about the effects of combining the House bill with a change in the so-called Sustainable Growth Rate mechanism for Medicare’s payments to physicians.

 

As we reported yesterday, budget deficits would be reduced, in our estimation, if the reconciliation proposal and Senate-passed health bill are enacted and remain unchanged throughout the next two decades. However, the legislation would maintain and put into effect a number of provisions that might be difficult to sustain over a long period of time. Whether any of its provisions—and if so, which ones—might be changed in the future is not for CBO to judge.

 

the CBO clearly knows what is up, but it is not their place to say so. the democrats know that, and are using the fact to play a clever shell game to disguise it while the real cost remains hidden.

[wiegie]

the CBO clearly knows what is up, but it is not their place to say so. the democrats know that, and are using the fact to play a clever shell game to disguise it while the real cost remains hidden.

so, it would be sort of like if somebody passed tax cuts with a sunset provision in them knowing full-well that it would be likely that at least some portion of the tax cuts would be extended in the future... right?

[i_am_the_swammi]

are you capable of actually responding to the point?

 

I (we) are more than capable of repsonding to the point...if it were proven to be fact.

 

But since it was written by a right-wing editorialist, and not an economist who's viewpoint I actually give a damn about....

 

why bother?

[yo mama]

Let it go, Az. What's done is done.

[WaterMan]

I don't know how much we can trust the budget office of Congress at this point with anything they say.

[Ursa Majoris]

the CBO clearly knows what is up, but it is not their place to say so. the democrats know that, and are using the fact to play a clever shell game to disguise it while the real cost remains hidden.

You don't know any of this. And nor does anyone else.

[millerx]

The issue is simple and can be summed up in a few points:

 

 

• It costs an arm and a leg to be elected / re-elected and the money comes from those who want you to take certain actions. These people form a tiny minority of the voting public. When their guy wins, there's payback required and it comes in the form of pork or bills slanted to the big donors.

• Lots of people outside politics are making enormous amounts of money from it. Mostly these are radio and TV outlets and they have a very deep interest in making sure politics is as confrontational as possible in order to keep ratings up. Anger sells.

• The public (in the broadest sense) isn't paying much attention, as can be seen from the 60% turnout in most presidential elections. This apathy allows the truly committed a much easier ride.

• The primary system means that candidates are increasingly selected on their ideological purity rather than their ability. Better for the truly committed to have a puppet in place than an independent thinker.

• Campaigning now takes up fully half (and even more) of a politicians time and, like everyone else, they only have 24 hours in a day. Good politicians are balking at this colossal waste of time and energy. Not only that, we go through this circus far too often.

• Politicians are paid peanuts considering their responsibilities so is it any wonder their main aim is to secure themselves a position elsewhere in case of electoral defeat?

• Notwithstanding the previous point, district gerrymandering has reached such a point that only 20% of districts (if that) are in the running for an incumbent change on each election cycle. The rest have been twisted into pretzel shapes so that they are as secure as they can be.

 

 

Good summation.

[Square]

I blame Canada!

 

Edited March 23, 2010 by Square

[millerx]

Running with the theme of the header...

 

Everyone keeps talking about the "dollars and cents" cost of this monumental adjustment... what about the doctors and what they may do?

 

I know of a few doctors already that are looking to retire right away because of this law. What about when they stop accepting medicare and medicaid or certain forms of insurance because of the hassle, redtape, and lack of pay for the work provided? You can't make doctors accept patients covered by these programs... If that happens, what does that do to the limited docs that will participate? Will it back up their waiting rooms, make patients wait months for a visit, etc?

 

Just some questions I haven't seen discussed yet... I guess it's too soon to consider unintended consequences as the winners (dems) are too busy gloating, and the losers (repubs) are too punch drunk and getting off the mat to think about other arguments.

 

 

ETA: This IS afterall about improving "healthcare" for the individual, and not ALL about money, power, or who is right or wrong.... right?

Edited March 23, 2010 by millerx

[Ursa Majoris]

Running with the theme of the header...

 

Everyone keeps talking about the "dollars and cents" cost of this monumental adjustment... what about the doctors and what they may do?

 

I know of a few doctors already that are looking to retire right away because of this law. What about when they stop accepting medicare and medicaid or certain forms of insurance because of the hassle, redtape, and lack of pay for the work provided? You can't make doctors accept patients covered by these programs... If that happens, what does that do to the limited docs that will participate? Will it back up their waiting rooms, make patients wait months for a visit, etc?

 

Just some questions I haven't seen discussed yet... I guess it's too soon to consider unintended consequences as the winners (dems) are too busy gloating, and the losers (repubs) are too punch drunk and getting off the mat to think about other arguments.

 

 

ETA: This IS afterall about improving "healthcare" for the individual, and not ALL about money, power, or who is right or wrong.... right?

Import doctors, as I said before. Easy for us to do.

 

Following your point to it's logical conclusion, how come other countries with their evil government health care have doctors? Shouldn't they all have quit by now?