Op-Ed: From a Fiscal Standpoint, Alarm About Health Care Reform

Pioneer Press | May 15, 2010

As co-chair of the Committee for a Responsible Federal Budget (yes, I know it sounds like an oxymoron), I helped organize a Washington conference this month titled 'What would a fiscal crisis look like in the United States?'

The event was attended by budget and economic experts, including former directors of the Congressional Budget Office (CBO), the White House Office of Management and Budget (OMB), and the Government Accountability Office (GAO). Participants were in agreement on one basic point: The current fiscal path of the U.S. government is unsustainable. Our current debt-to-GDP ratio is over 60 percent - higher than at any time since World War II - and based on unfunded obligations to Social Security, Medicare and Medicaid this ratio will soon reach 100 percent. It appears that without some serious restraint, and soon, we are on course to become another Greece.

That is why, from a fiscal standpoint, the more I look at the recently passed health reform law, the more alarmed I become. My concern relates primarily to the many phony financing mechanisms included in this new program - which offers health coverage for 30 million uninsured Americans (either by adding them to the Medicaid program or by offering them government subsidies to buy insurance).

  • First, there appears to be a double count of some of the savings achieved in the federal student loan program. The budget savings are accomplished by eliminating banks from offering student loans, thereby saving the cash subsidy paid to banks. The resulting cost savings — perhaps $70 billion over 10 years — are primarily used to help offset the costs of expanding Pell grants to needy students. But it appears that some of these dollars — maybe $20 billion — may be double-counted to help finance the new health law. In any event, the student loan provision just didn't belong in the health bill, but that is the way Congress works.
  • Second, the health reform law creates a new long-term care insurance program. Like Social Security and Medicare's payroll tax, a dedicated tax is created to collect and set aside money to pay these long-term care benefits in the future. But these dollars will be spent as fast as they are collected to pay for other health programs. This is the same budget approach now plaguing the Social Security Trust Fund, which was raided to pay for non-Social Security programs over the years. In the least, it is deceptive accounting to pretend that we are pre-funding the long-term care program when this money is not being honestly saved for that purpose.
  • Third, the health reform law also raises new Medicare tax revenue and uses these dollars for new health programs — while at the same time crediting these dollars to the Medicare Trust Fund. Again, like the long-term-care tax, you cannot simultaneously spend these dollars now and save them for Medicare later.
  • Fourth, extra taxes are anticipated in coming years due to additional income that will be subjected to the Social Security payroll tax. Not surprisingly, these new revenues are also double-counted to cover new health program costs while at the same time being credited to the Social Security Trust Fund. Once again, you cannot spend these same dollars twice.
  • Fifth, about 40 percent of the new costs associated with health reform are covered by anticipated savings in the Medicare program. It is an unavoidable fact, however, that Medicare is already becoming a drain on the general fund budget — a problem that will only grow worse as baby boomers retire. Trimming Medicare costs and then spending those savings on a new program does not help us get out of our fiscal hole.
  • Sixth, it bears noting that Congress is now pursuing — with separate legislation — a Medicare "doctor fix." This legislation — which is almost certain to pass — is designed to restore physician payment levels under the Medicare program. This "fix" is projected to cost about $280 billion over the next 10 years - which alone exceeds (and therefore wipes out) the projected $138 billion surplus over 10 years that CBO scored for the health law.
  • Finally, just a few days ago CBO released a new report estimating the bureaucratic cost to implement the new health programs. These expenses are unavoidable - but were not included in earlier estimates of the law. These expenses add at least another $115 billion over 10 years to the price tag for health reform.

When you add it all up, the federal government's long-term fiscal imbalance will very likely grow worse as a result of the health law. Before health reform, we were looking down the road at a fiscal cliff. Instead of hitting the brake, we have stepped on the accelerator.

So, what would a fiscal crisis look like in the United States? We may soon find out.

Copyright 2010, Pioneer Press