Keep the War Gimmick Out of Doc Fix Discussions

Jan 22, 2014 | Health Care| Other Spending

The war savings gimmick is back! As the debate over how to offset a permanent "doc fix" to Medicare's Sustainable Growth Rate formula heats up, the idea of "paying for" it with "savings" from the war drawdown already underway has resurfaced.

The issue arises because the Congressional Budget Office (CBO), Congress' official scorekeeper, automatically assumes that uncapped discretionary spending grows with inflation, which allows lawmakers to technically bank significant "savings" (around $500 billion over ten years) by placing caps on war spending consistent with the draw-down policy that has been in place for a number of years. Thus, they are claiming savings just by codifying a policy that is already being carried out, not by enacting a new policy that would actually reduce deficits.

Putting these caps in place is not problematic in isolation. As we pointed out last week, lawmakers may have labeled extra money as war spending in the omnibus bill to supplement base defense spending, which unlike war spending is subject to strict spending caps. But capping war spending has often been proposed to offset deficit-increasing policies, particularly the doc fix. In reality, this just increases future deficits. You can see our infographic explaining the war gimmick here.

The current fear is that lawmakers may be tempted to resort to the war gimmick as an offset for the permanent physician payment solution under debate (the temporary fix expires on March 31). CBO estimated that a bill reported from the House Energy and Commerce Committee would cost $153 billion over ten years, and a 10-year physician payment freeze would cost $117 billion over the same period (CBO has not yet publicly score the Senate Finance Committee's proposal). We have said before that there remains a whole host of options to offset the doc fix, including many reforms that would work in concert with the physician payment reform to help bend the health care cost curve. Resorting to the war gimmick is harmful and would partially thwart the purpose of the earlier three-month doc fix extension, which was to buy time to find offsets.

Putting caps on war spending can be helpful in order to avoid the backfilling of defense cuts with supplemental funding, but it should not be used as an offset. Since it's codifying a policy that is already in place, it does not represent legitimate savings and should not be used as such.