Committee for a Responsible Federal Budget

Gimmick, Responsible Budgeting, or Something in Between?

There has been a great deal of discussion about certain parts of the health care bill and whether or not they constitute budget gimmickry (see here and here).

Here is where we come down:

Using 10 years of savings to pay for 6 years of spending. Actually, this could be considered fiscally responsible. Over the first decade, the bill would ramp up many of the savings provisions earlier and faster than the spending. Over the longer period of time, the savings accumulate more quickly and so the bill stays (more than) balanced in the second decade, which is what is important. To be sure, Congress has played some games with the start date of coverage provisions -- in order to meet a ten-year cost target, but at the end of the day, this has no real effect on the fiscal responsibility of the bill. As Orszag explained in a previous post, "health care reform will reduce the deficit in this decade, and it will reduce the deficit by even more thereafter. There's no gimmick in that."

Double-counting Medicare savings. Madoff accounting aside, you can only spend a dollar once. So the new money going through the Medicare trust fund can either extend the life of Medicare, or offset the costs of healthcare—not both. It is fine to use the Medicare changes to pay for healthcare (though it makes fixing Medicare A LOT HARDER) but you cannot turnaround and claim to have helped Medicare along the way, as some proponents of the health bill have done.

Hidden Costs. The bill authorizes at least $80 billion in additional discretionary spending over the decade for items related to health reform (CBO has yet to estimate authorizations for several additional programs for which no funding levels are specified). However, the bill does not include the potential “pay-fors” for these additional costs. In his blog, Peter Orszag argues that authorizing the use of these funds does not mean that they will be used, given that Congress must decide discretionary outlays through the appropriations process, and rarely spends all that is authorized. This is true; and it is also true that Congress can increase spending in these areas by reducing discretionary spending elsewhere. But the Administration needs to be vigilant in ensuring any additional discretionary spending as a result of health reform is paid for. The administration proposed a non-security discretionary freeze in February's FY2011 budget proposal - health spending doesn't get a free pass from this freeze.

The “Doc Fix.” The bill does not include addressing the sustainable growth rate (SGR), or doc fix, for Medicare payments to physicians, though the administration wants to increase spending here. Under current law, Medicare payments to physician would be cut drastically, but Congress has routinely "patched" these scheduled cuts worth billions each year. It is totally irresponsible to not include fixing this policy as part of healthcare reform. You don't add a new addition to your home but ignore your leaky roof -- especially when your remodeling costs are being paid for out of your roof-fund. This isn’t a gimmick so much as just being downright irresponsible.

The CLASS Act. GIMMICK, GIMMICK, GIMMICK. As we have commented on here, here, and here, using $70 billion in revenues for this long-term care insurance program which is available because premiums start 5 years before benefits do, is egregious budgeting and the worst of timing gimmicks. And policymakers have now left the new CLASS entitlement program in a dangerously underfunded position – just what we need. GIMMICK, GIMMICK, REALLY BAD GIMMICK.

New Payment Cliffs. Keith Hennessey has also pointed out another gimmick on his blog. He identified a new Medicaid "primary care doctor payment cliff" that is scheduled to reduce payments to doctors under Medicaid and is estimated to save $29 billion in the first decade. Given that lawmakers frequently patch Medicare payment changes, there is little reason to believe that the $29 billion in savings will materialize.

Student Loans. The health care reform bill now includes language that would replace student loan guarantees with direct lending. Based on rules set in the Federal Credit Reform Act (FCRA), the CBO estimates that this change would save about $62 billion over 11 years. However, because this methodology does not incorporate market risk, the CBO provided an additional estimate following a fair-value estimate. Under fair-value accounting, student loan reform would save about $40 billion over 11 years, or $22 billion less. Using this measurement, the education provisions in the reconciliation bill would be closer to deficit-neutral than to reducing the deficit by $19 billion.

It’s not as bad as some of the critics claim, but gimmick-wise, it is way worse than it should be.