Real Bottom Line Of Baucus' Reform Bill: Bigger Deficits, Higher Taxes — Or Both
The White House is on a roll. Congressional Democrats are united. Senate Finance Committee Chairman Max Baucus has steered his draft legislation through his committee. And the CBO now suggests that a health overhaul will reduce the deficit.
The scoring is particularly important. It reassures us that while the Democratic proposal is ambitious and will help remake a sixth of the national economy, we will not break the bank doing it.
The CBO scoring is a major victory for Democrats, a boost that may help push them over the top — shoring up support among moderate Democrats in Washington and independent voters on Main Street.
In July, the House draft scoring clearly hurt efforts. It’s a “TKO,” declared Keith Hennessey, a former director of the National Economic Council.
No Knockout After All
With a leaner proposal and a new review by the CBO, the Democrats have wind in their sails. And budget neutrality honors a key promise made by the president: “I will not sign a plan that adds one dime to our deficits — either now or in the future. Period.”
In fact, the CBO numbers seem to do one better: the deficit will shrink, to a tune of about $80 billion over 10 years. As the New York Times declared, “Health Care Bill Gets Green Light In Cost Analysis.”
Except it isn’t so. The Finance Committee didn’t pass a bill that will reduce the deficit. Far from it. Costs will rise with time.
While much congressional negotiation lies ahead, this much is already clear: The health overhaul favored by Democrats will add to the deficit and almost surely result in big tax increases.
Not-So-Automatic Cuts
To understand the credibility gap, consider the history of Medicare cost controls. In 1997, as part of the Balanced Budget Agreement, a new formula for Medicare funding was envisioned — basically, spending could grow only as fast as the economy. And if the Great Society Program grew faster, automatic cuts would take place.
Except they never did. For years, Congress has simply overridden any Medicare cuts. Last year, Medicare fees were set to fall more than 10%, until Congress scrapped the cut. The same thing happened the year before and the year before that. Washington is consistent: Under both Democratic and Republican leadership, programmed cuts haven’t gone through.
To help pay for a medical overhaul — with its big subsidies for lower-income Americans and a massive expansion of government programs like Medicaid and SCHIP — Baucus envisions two core ideas.
First, the central Medicare proposal of 1997 — future cuts to provider reimbursements — will start working. In 2011, physicians would take a pay cut of 24% and not see a raise for almost a decade. Hospitals and other institutional providers would also see their fees cut, and cut deeply.
In other words, a year before an election, Congress would finally push through the sort of automatic fee cuts that they’ve been talking about implementing for over a decade. Other money would be found in Medicare by the appointment of a commission that would find further savings — but, again, Congress could undo them.
What if Congress flinches and doesn’t carry through on its Medicare cuts? By CBO scoring, the deficit would rise by $153 billion. Unless, of course, the second idea in BaucusCare works. That is, should costs rise too fast, subsidies to low-income Americans would be reduced.
So let’s review: If Congress can’t make cuts to the health care of seniors, we’ll just take the money away from low-income Americans. Imagine the newspaper headlines.
The trigger sounds much like an idea in the Medicare Modernization Act of 2003. It stated that if costs rose by a certain amount over a period of time, a trigger would require a presidential review. For the record, Congress overrode the presidential action requirement in 2007.
Doubtful CBO
Costs will not be contained with Baucus’ legislation. Even the CBO doesn’t think it will work. In the letter to the senator, its director wrote of his own numbers: “These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.”
Despite the green light, BaucusCare means bigger deficits or higher taxes — or both.
This piece originally appeared in Investor's Business Daily
This piece originally appeared in Investor's Business Daily