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  • Obamacare's Cooked Books and the "Doc Fix"

    The Obama administration continues to insist (see this post from White House budget director Peter Orszag) that the recently enacted health-care law will reduce the federal budget deficit by $100 billion over ten years and by ten times that amount in the second decade of implementation. They cite the Congressional Budget Office’s cost estimate for the final legislation to back their claims.

    And it is undeniably true that CBO says the legislation, as written, would reduce the federal budget deficit by $124 billion over ten years from the health-related provisions of the new law.

    But that’s not whole story about Obamacare’s budgetary implications — not by a long shot.

    For starters, CBO is not the only game in town. In the executive branch, the chief actuary of the Medicare program is supposed to provide the official health-care cost projections for the administration — at least he always has in the past. His cost estimate for the new health law differs in important ways from the one provided by CBO and calls into question every major contention the administration has advanced about the bill. The president says the legislation will slow the pace of rising costs; the actuary says it won’t. The president says people will get to keep their job-based plans if they want to; the actuary says 14 million people will lose their employer coverage, many of whom would certainly rather keep it than switch into an untested program. The president says the new law will improve the budget outlook; in so many words, the chief actuary says, don’t bet on it.

    All of this helps explain why the president of the United States would be so sensitive about the release of the actuary’s official report that he would dispatch political subordinates to undermine it with the media.

    It’s not the chief actuary’s assignment to provide estimates of non-Medicare-related tax provisions, so his cost projections for Obamacare do not capture all of the needed budget data to estimate the full impact on the budget deficit. But it’s possible to back into such a figure by using the Joint Tax Committee’s estimates for the tax provisions missing from the chief actuary’s report. When that is done, $50 billion of deficit reduction found in the CBO report is wiped out.

    And that’s before the other gimmicks, double counting, and hidden costs are exposed and removed from the accounting, too.

    For instance, this week House and Senate Democratic leaders are rushing to approve a massive, budget-busting, tax-and-spending bill. Among its many provisions is a three-year Medicare “doc fix,” which will effectively undo the scheduled 21 percent cut in Medicare physician fees set to go into effect in June. CBO says this version of the “doc fix” would add $65 billion to the budget deficit over ten years. The entire bill would pile another $134 billion onto the national debt over the next decade.

    If the Obama administration gets its way, this three-year physician-fee fix will eventually get extended again, and also without offsets. Over a full ten-year period, an unfinanced “doc fix” would add $250 to $400 billion to the budget deficit, depending on design and who is doing the cost projection (CBO or the actuary).

    Administration officials and their outside enthusiasts (see here) say the Democratic Congress shouldn’t have to find offsets for the “doc fix” because everybody knows a fix needs to be enacted and therefore should go into the baseline. (By the way, the history of the sustainable growth rate [SGR] that Ezra Klein provides at the link above is a misleading one. The SGR was a replacement for a predecessor program that too had run off the rails — the so-called “Volume Performance Standard” enacted by a Democratic Congress in 1989.)

    But supporting a “doc fix” is not the same as supporting an unfinanced one on a long-term or permanent basis. Not everybody in Congress is for running up more debt to pay for a permanent repeal of the scheduled fee cuts, which is why such a repeal has never been passed before. In the main, the previous administration and Congresses worked to find ways to prevent Medicare fee cuts while finding offsets to pay for it.

    But that’s not the policy of the Obama administration. The truth is the president and his allies in Congress worked overtime to pull together every Medicare cut they could find — nearly $500 billion in all over ten years — and put them into the health law to pay for the massive entitlement expansion they so coveted. They could have used those cuts to pay for the “doc fix” if they had wanted to, as well as for a slightly less expansive health program. But that’s not what they did. That wasn’t their priority. They chose instead to break their agenda into multiple bills, and “pay for” the massive health entitlement (on paper) while claiming they shouldn’t have to find offsets for the “doc fix.” But it doesn’t matter to taxpayers if they enact their agenda in one, two, or ten pieces of legislation. The total cost is still the same. All of the supposed deficit reduction now claimed from the health-care law is more than wiped out by the Democrats’ insistent march to borrow and spend for Medicare physician fees.

    And the games don’t end there. CBO’s cost estimate assumes $70 billion in deficit reduction from the so-called “CLASS Act.” This is the new voluntary long-term-care insurance program that hitched a ride on Obamacare because it too created the illusion of deficit reduction. People who sign up for the insurance must pay premiums for at least five years before they are eligible to draw benefits. By definition, then, at start-up and for several years thereafter, there will be a surplus in the program as new entrants pay premiums and very few people draw benefits. That’s the source of the $70 billion “savings.” But the premiums collected in the program’s early years will be needed very soon to pay actual claims. Not only that, but the new insurance program is so poorly designed it too will need a federal bailout. So this is far worse than a benign sleight of hand. The Democrats have created a budgetary monster even as they used misleading estimates to tout their budgetary virtue.

    There is much more, of course. CBO’s cost projections don’t reflect the administrative costs required to micromanage the health system from the Department of Health and Human Services. The number of employers looking to dump their workers into subsidized insurance is almost certainly going to be much higher than either CBO or the chief actuary now projects. And the price inflation from the added demand of the newly entitled isn’t factored into any of the official cost projections.

    We’ve seen this movie before. When the government creates a new entitlement, politicians lowball the costs to get the law passed, and then blame someone else when program costs soar. Witness Massachusetts. Most Americans are sensible enough to know already that’s what can be expected next with Obamacare.

    Cross-posted at National Review Online.

    Posted in Obamacare [slideshow_deploy]

    8 Responses to Obamacare's Cooked Books and the "Doc Fix"

    1. Patric, Washington S says:

      I find it interresting that the Heritage Foundatin, the bastion of conservative thinking, is defending Medicare, the largest government entitlement after Social Security. It makes me somewhat suspicious of the motives here–are you truly FOR Medicare or simply against anything the Obama administration proposes?

    2. Dennis Social Circle says:

      Smoke and mirrors, that is the way of obam and clan. They pat us on the back and tell us what a great job they are doing with one hand, then slit our throats with the other. I wonder if the American public will ever wake up and see what is and has happened to this country????

    3. Randall Holland, Ari says:

      Bend over here is comes. Now smile and act like you enjoyed it. It's going to happen again.

    4. Billie says:

      Patric, I pray for your mind to open to consider everything. Going by the social indoctrination is limiting your ability to think freely and intelligently. The government took funds over many years, from checks of many employed to pay for medicare and social security. Many employed have NEVER PAID A DIME towards medicare and social security but benefiting from them. This entitlement is absolutely WRONG! These programs should be solely to those that have been forced to pay in over the years.

    5. Jeanne Stotler, wood says:

      Patric, I went to work when I was 14, this was 1946 and we were recovering from the effects of WWII and the preceding depression. Ever since then deductions were taken out of my check, when Medicare came these were taken. If I had put this money in some Ins. not run by Fed. Gov't. I would live off the interest this was suppose to be getting, if a private firm had done to those who paid into annuities,what the country has done, the people involved would be in prison. Please DO NOT refer to these as intitlements, for those of us who have paid for years we are using OUR MONEY, it so happens the Gov't. spent it and now has to borrow it, but it is OWED to us. I agree those who did not pay in should not be getting the benefits, it's not OUR fault it's the fault of the Gov'T.

    6. Betty, Fort Worth, T says:

      I also have worked since I was old enough to do so. I know of many people collecting Soc. Sec. who are not qualified but the SS agents said they were eligible. Like one you woman who married a man who died suddenly and left her with a small child NOT HIS. She was married to him for one year. She collected for the child for the next 18 years. he former ex, the father of the child, was paying child support!! There was no reason she couldn't work. I know of others as well. I tried to report these "scams" and was not listend to. Help me understand that. Another case some years ago: a young woman married a young man and on his DEATH BED fathered a child. He died. She collected $800 a month for the child and $800. month for herself until the child was 18 and also qualified for low income housing preference!!! something is very wrong with Social Security. It was mean for those paying in. ONLY.

      Also how about the cost of the Iraq war? $450 Million a DAY? I think this would go a long way towards 57 million Soc. Security recipients. And why are we paying Social Security to illegal aliens? Or spending billions for every country in the world, except our own citizens? This government has been corrupt since Geo. Washington left office. Until the people wake up it will continue. We are technically bankrupt now. The only thing we haven't done is fold up the tent. Probably because some of us are still living in it.

    7. LALaw, Los Angeles says:

      James, the point about the Doc Fix not being included in the term du jour of the right, "OBAMACARE", is intellectually dishonest and you know it is. The Doc Fix would have to be enacted to be fixed no matter if HCR passed or not – including it as a cost of HCR is dishonest because it had nothing to do with HCR. Ezra Klein has commented about this a bunch (Jonathan Chait just had an article about Michael Gerson's epistimic closure about the topic the other day). If OBAMACARE did not include the Doc Fix, it also didn't include costs for the Iraq and Afghanistan wars, extension of the Bush tax cuts except those making over $200,000 a year, the cost of Medicare for the next 200 years and the cost of colonizing Mars in 2300. What do all of these have in common? They'd have to be enacted whether HCR passed or not. Please get out of your Fox News cocoon – you work for a "think tank", for god's sake.

    8. Pingback: MoConservativePatriot.com » Obama, Reid and Polosi LIED…duh!

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