CBO Admits Health Care Law Will INCREASE the Deficit
Having completed its updated baseline for economic and health spending assumptions, the Congressional Budget Office this afternoon finally released its complete score of the repeal of the health care law (H.R. 2). However, the day’s big story comes in a separate letter to House Budget Committee Chairman Paul Ryan, in which CBO admits that under assumptions CBO considers to be realistic – i.e., NOT the assumptions that Democrats forced them to assume when scoring the measure – the law will increase – that’s right, INCREASE, NOT DECREASE – budget deficits.
It’s worth providing some context here – much of which goes back to CBO’s report on the long-term budget outlook, released in June. That report includes a section entitled “Questions About Sustainability” on page 35, which I’ve pasted below. (Many of those same quotes were included in CBO’s initial analyses of the health care and reconciliation laws.) CBO noted that “increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs” and “it is unclear whether the [Medicare provisions] can be sustained, and, if so, whether it will be accomplished through greater efficiencies in the delivery of care or will instead reduce access to care or diminish the quality of care.” CBO similarly called provisions in the reconciliation law slowing the growth of insurance subsidies after 2018 “difficult to sustain.”
As part of its June report, CBO released an alternative fiscal scenario that assumes three of the major savings provisions in the law will not be implemented after 2020:
- Productivity adjustments to providers;
- Reductions in the growth of insurance subsidies; and
- Caps on Medicare spending enforced by the Independent Payment Advisory Board.
In its introduction to the report (page 4 of the PDF), CBO noted that “the alternative fiscal scenario incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period.” Congressman Ryan requested that CBO score the law under these alternative assumptions – i.e., removing changes which CBO itself believes Congress will make, or will be forced to make, because several key provisions in the law cannot be sustained. That request led to today’s conclusion, under which the law will increase the deficit.
To sum up:
- Congress’ non-partisan budgetary scorekeeper believes that the major savings proposals in the health care law cannot – and will not – be sustained in the long-term;
- Democrats NEVER asked CBO to score the health care law according to what CBO itself actually thinks will happen as the law is implemented – as opposed to what Democrats FORCED CBO to assume will happen; and
- When Chairman Ryan asked CBO to score the law according to what CBO itself – not Republicans, not Democrats, but the non-partisan CBO analysts – thinks will happen as the law is implemented, CBO found that the law will RAISE the deficit.
Speaker Pelosi famously said we had to pass the health care law bill to find out what’s in it. Unfortunately, today’s letter from CBO exposed the problems in that strategy when it comes to unsustainable entitlements – and exposed the lie behind the Democrat claims that the Congressional Budget Office believes the law will reduce the deficit.
Questions About Sustainability
One challenge that arises in projecting federal outlays for health care over the long term is that the recent legislation either left in place or put into effect a number of procedures that may be difficult to sustain over a long period. For example, the legislation did not alter the sustainable growth rate mechanism used for determining updates to Medicare’s payment rates for physicians; under that mechanism, those rates are scheduled to be reduced by about 21 percent in 2010 and then decline further in subsequent years. Since that mechanism was enacted in 1997, its provisions have usually been modified to avoid scheduled reductions in payment rates, and legislation was just enacted to delay cuts in those payment rates until December 2010 (a development that is not reflected in the projections). At the same time, the legislation includes provisions that will constrain payment rates for other providers of Medicare’s services. In particular, increases in payment rates for many providers will be held below the rate of increase in the average cost of providers’ inputs.
Taking all the provisions of the legislation together, CBO expects that, adjusted for inflation, Medicare spending per beneficiary will increase at an average annual rate of less than 2 percent during the next two decades—compared with a roughly 4 percent annual growth rate during the past two decades (a calculation that excludes the effect of establishing the Medicare prescription drug benefit). It is unclear whether that lower rate of growth can be sustained and, if so, whether it will be accomplished through greater efficiencies in the delivery of health care or will instead reduce access to care or diminish the quality of care (relative to the situation under prior law).
Another provision that may be difficult to sustain will slow the growth of federal subsidies for health insurance purchased through the insurance exchanges. For enrollees who receive subsidies, the amount they will have to pay depends primarily on a formula that determines what share of their income they have to contribute to enroll in a relatively low-cost plan (with the subsidy covering the difference between that contribution and the total premium for that plan). Initially, the percentages of income that enrollees must pay are indexed so that the subsidies will cover roughly the same share of the total premium over time. After 2018, however, an additional indexing factor will probably apply; if so, the shares of income that enrollees have to pay will increase more rapidly, and the shares of the premium that the subsidies cover will decline.