18 March 2010

The Healthcare reform bill and the deficit

It's finally out -- the actual, final bill that will be voted on (yes, there will be a vote) sometime this weekend.  Bored?  You can download and read the actual bill here, or you can read the CBO scoring of the bill here.

It's kind of depressing to see how few actual facts make it into the mainstream media's narrative and thus into the conventional wisdom.  I don't mean to pick on anybody in particular, but let's use this post from The Central Line as an example of the confusion that has been generated by the media coverage of this dynamic process.  Much of the confusion, I might add, has been willfully perpetrated by the agenda-driven folks at Fox News and various other conservative pundits.  Their brethren, however, in the fact-based media, have completely failed in making the basic facts about the health care reform bill available and understood by the electorate.

Dr Mattke poses the following questions:
I also missed the math class in school that allowed you to save money and still spend it- I’d like to be able to do that in my own expenses.  [...] Are we really talking about adding a trillion dollars to the deficit that we can’t pay now?  Doesn’t the word “deficit” mean that we can’t pay it now?

[...] I’m confused and want to know- is tort reform in or out?  Is the public option in or out?  Is the opening of health insurance sales across state lines in or out?  Are we still voting on the bill?  Because it doesn’t sound like congress is even going to vote on the bill, but on the second derivative of the bill, and this violates the principles of SchoolHouse Rock in which the rules were clearly laid out.

The deficit.  We're all concerned about that now, aren't we?  Pity the Republicans who passed Medicare Part D in 2003 were not so concerned about the largest deficit in history back then and made no attempts whatsoever to fund the largest expansion of health care in US history -- they just spent the money and tacked on well over a trillion dollars to the deficit without a care. But that's water under the bridge to the GOP now that they are in the minority and it's a Democrat trying to spend some money -- they've rediscovered their aversion to deficits.

Which is why it's noteworthy -- headline-worthy for that matter -- to point out this simple fact:  The Health Care Reform bill is fully paid for.  More than fully paid for.

The Health Care Reform Bill reduces the deficit.

Got that?  Reduces the deficit.  Makes it smaller.  Saves money.

But how is that possible?  By what black magic is it possible to spend money and save money at the same time?  By what perversion of the arithmetic we all learned in grade school can increased spending result in more money in the bank?

It's actually not that hard.  You see, health care reform does involve spending more money -- principally on the subsidies for low- and middle-income individuals' purchase of insurance.  But that's not all that is in the bill.  There are new funding sources that bring in more money, and there are offsets that reduce spending in other areas.  Specifically, there are new taxes on high-cost insurance plans and on investment income for wealthy taxpayers, among others.  The Medicare Advantage program pays more to insurers who provide private Medicare insurance than the actual cost of the insurance; these overpayments will be phased out.  There are expected cost savings from the cost control elements of the bill (yes, they do exist) although these are not scored as saving as much as some people expect.  This actually means that if the cost controls work better than the CBO estimates (the CBO used the lowest savings model from these measures) the bill may be even more effective at reducing the deficit.  This is now new news, by the way.  The House bill (now dead) which passed in November, also reduced the deficit; the Senate bill passed Christmas Eve reduced the deficit by $118 billion.

How big is the deficit reduction under the amended Senate bill?  $138 Billion over the next ten years.  That's a lot.  There are some claims that these savings are not "real" in that some of the taxes begin to be collected before the costs are incurred, and to a degree there is some pre-payment of the costs.  The criticism is, however, fallacious, since the estimates of cost savings actually increase in the bill's second decade. Obviously, such long-range projections have larger error bars, but the CBO estimates that the second decade of the bill would reduce the deficit by one-half of a percent of GDP. when you are talking fractions of GDP, by the way, the numbers are really big.

If there's one thing that you should take away from the bill -- whether you think it's too big or too small or too friendly to insurers or just pure soshalism -- it is this simple fact: it is fully paid for.  The CBO is a tough customer in its demands and they require even the worst-case numbers to reduce the deficit before they will endorse it as deficit-reducing.

As for Dr Mattke's other questions: no tort reform, no public option, inter-state insurance exchanges by compact between states, and yes there will be a vote, a combined vote on the bill and the fix, referred to as "Deem and Pass."  (Despite the hypocritical GOP outcry over the process, this sort of procedure, like reconciliation, is perfectly accepted and was used extensively by the Republicans when they controlled Congress.)


  1. Do you have a link that combines the "amendment" with the first bill? The standalone amendment doesnt make sense on its own.

  2. Of course, one's devotion to 'reconciliation' depends upon one's politics. If you favor the issue, then you support any legal means to move it forward. This is true of earmarks, fillibustering, etc. I am deeply skeptical that the current plans will remain on budget, despite the CBO's optimistic forecasts. I expect that the actual costs will be higher than currently estimated because of 'unforeseen costs', that always seem to materialize. Every major government initiative that I recall costs far more than originally estimated. I always believe that the current plans are overpromising and will underdeliver. Much of this, in my view, is about extending government control and not about health care. www.MDWhistleblower.blogspot.com


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