The Jobs Bill and the Docfix Gimmick

Click here for a printer-friendly version of this article

This past week, Congressional Democrats unveiled their latest spending bill, grandly entitled, “The American Jobs and Closing Tax Loopholes Act.” The Congressional Budget Office (CBO) initially found that the bill would increase federal deficits by a further $134 billion over the next ten years. Former White House NEC Director Keith Hennessey nicknamed it, “The Hypocrisy Act of 2010.” Even the House Democratic rank-and-file balked at the large initial cost of the bill, and moved to scale it back. Scaled back or not, this legislation would add still more spending to our already unsustainable federal deficits.

One glaring problem with both versions of the bill, identified not only by Hennessey but also by Jim Capretta, is the budget gimmick it applies (yet again) to the so-called “docfix” issue.

“Docfix” is the euphemism attached to legislation to spare Medicare physicians from reductions in their reimbursement rates (the so-called “Sustainable Growth Rate,” or SGR) scheduled under current law. Unless the law is changed, these payments would be reduced (per service) by 21% this year.

From the time it entered office, the Obama Administration signaled its intention to eliminate these scheduled payment reductions, and to add the resulting cost to the federal budget deficit. This spending increase was originally slated to occur as a part of health care reform. CBO found, however, that its inclusion would cause the total effect of reform to add significantly to the deficit, at variance with Administration claims of the legislation’s fiscal benefits. So the “docfix” provision was stripped from the health care bills, and the remaining provisions of which were then claimed to reduce federal deficits – with passage of “docfix” postponed until later.

Many noted that merely splitting the health care provisions into two legislative pieces was a gimmick, invalidating proponents’ claims that health care reform will improve the budget outlook. Whether it’s done in one bill or two doesn’t change the total deficit-increasing effect.

Congress’s new spending bill took the gimmick to a yet another level; the first version would have restored $65 billion of the physician payments over the next three years, to be followed by a 35% reduction in 2014. But everyone knew that there was no intention to allow this 35% reduction to happen. The three-year extension was strategically chosen to be long enough to quiet the physician community for the time being, while still being short enough so as not to visibly use up every last bit of deficit-reduction credited to the health care bill.

Public embarrassment over the disingenuous handling of the physician payment issue apparently forced a tactical retreat by the Democratic leadership. Recent reports indicated that the legislation would be redrafted to extend the physician payments for only 19 months. 19 months or three years, however -- the gimmick is exactly the same.

In other words, instead of splitting the health care budget-buster into two pieces, it will be split into three: the first being the supposedly deficit-reducing reform bill already passed, the second being the jobs bill now before the Congress, and the third being a not-yet-unveiled bill to restore higher physician payments in about a year and a half’s time.

Fit those three pieces together, and the resulting picture is clear: a comprehensive legislative initiative that makes a desperate deficit situation even worse. The apparent hope of proponents is that by the time the last puzzle piece is joined, voters will have forgotten the picture sold to them long ago: of a health care initiative that was supposed to reduce deficits, not worsen them.

That bottom line is simply this: There is no self-consistent view of the budget in which the Administration’s health care policies do not add to the federal deficit.

There are two possible ways to look at the federal budget. One possible view is to only look at the literal reading of current law, ignoring what one believes is likely to happen in future legislation. A second, alternative approach is to note obvious instances where the literal path of current law is politically unrealistic, and to adjust the picture in light of these expectations.

These are both legitimate ways to think about the budget. Reasonable people can differ on the right way. But they are inconsistent with each other; one can’t shift back and forth between the two opposing views while maintaining reasonable conclusions about budget policy.

In this case, both views lead to the conclusion that the Administration’s health care policies will add to the deficit. The only way to arrive at the conclusion that health care reform reduces the deficit is to switch paradigms in midstream.

To be specific: the Administration announced its support for doing away with the Medicare physician payment cuts in the budgets it submitted to Congress. They declined, however, to take responsibility for this policy choice, embedding these higher physician payments in a “current policy” baseline (see Table S-7 in the Administration budget for the derivation).

Again, the Administration’s “current policy” baseline does not represent literal current law, but represents what the Administration asserted was politically likely to happen in any event. On this maneuver the Administration staked its claim that the higher physician payments should not be regarded as an Administration policy resulting in higher deficits.

The essence of this position is to say that it doesn’t make sense to think of the budget literally in terms of current law. Relative to literal current law, the higher physician payments embraced by the Administration clearly increase the deficit. The Administration has argued, however, that this is the wrong way to think about the issue.

Now, zip ahead to the health care reform bill passed earlier this year. CBO found in March that the literal reading of the bill was that it would reduce deficits by $138 billion over the next ten years. And the Administration has repeatedly embraced this literalist reading, as in this May post on the OMB blog.

Notice the significant shift to the literalist view. In this view, one should look only at the literal reading of the law on the books, ignoring what is likely to actually happen. This is key to the defense of the health care bill, about which CBO noted in its reports that the savings envisioned from a 21% cut in physician payments “might be difficult to sustain” (this being but one quote amid a general caveat about the bill’s unrealistic savings projections). At the time of the CBO analysis, it was already common knowledge that the Administration and the Congressional majority intended to move the “docfix” bill separately.

Despite CBO’s caveats, proponents of the health care legislation nevertheless insisted that we ignore what all agreed was likely to happen and instead just focus on the literal reading of the legislation – producing the finding that health care reform would, indeed, reduce the deficit.

But no matter how you look at it, if you look consistently in one particular way, the Administration’s health care policies taken together clearly increase the deficit. If a literal reading of current law is the right way to think about the budget, then indeed the health reform bill doesn’t add to the deficit -- but the docfix bill does. If instead we are to make allowances for the likely continuation of “current policy,” then the CBO score for health care reform -- predicated on an unrealistic 21% cut in physician payments per service – was never to be believed.

It’s worth repeating: there is no self-consistent view of the budget in which the health care initiatives pursued this year will not, taken together, add to the deficit.

There’s another inconsistency in all of this, in that the public is being asked to think of future savings in Medicare spending as being made certain by the health care bill, at the same time that we are asked to believe that previously-enacted savings (in physician payments) should always have been treated as implausible. But – one inconsistency at a time.

This is the sort of maneuver that perpetuates public cynicism; asking Americans to credit one bill for its deficit-reduction, while ignoring companion legislation that makes the deficit worse. Meanwhile, the deficit continues to climb, while the employers of the gimmicks declaim any responsibility for the worsening fiscal situation.

Over the past few months, many columnists have wondered aloud about what to do about signals of rising public discontent with the operations of their government. Calling an end to these budget games – and to the disingenuous defenses of them – would be a good start.