Update: Health Care Bill Cost Gimmickry

It has bothered me in an earlier post that I missed several critical tricks the Democrats in Congress are using to understate the cost of their health care bills.  These are important enough that I am re-writing the original post:

I think most folks were shocked that the CBO scored the Baucus bill as deficit-neutral.  Well, we are starting to understand why (by the way, these are not criticisms of the CBO, but of the Senate).  So far, four major budget tricks have been identified:

1. The cost of the individual mandate is not in the scoring. There seems to be a lot of spin on this issue, as to whether the mandate is a "tax" or not, but word games aside, clearly the individual mandate is a major cost of the program to Americans.  The best analogy I can give is that if the government cut your taxes that go to road construction but then mandated that everyone fund directly out of their pocket the cost of a quarter mile of road repairs each year, most people would see this as a cost either way.  But it turns out that the CBO scores things differently.

First, a little history.  Like both the House and Senate bills, the Clinton health plan would have mandated that individuals and employers purchase private insurance.  In its 1994 score of the Clinton plan, Bob Reischauer's CBO included those mandated "private" payments in the federal budget "“- i.e., as federal revenues and federal expenditures.

And yet, none of the CBO scores of this year's bills include the costs of similar individual/employer mandates as federal revenues or federal spending.

My read of the CBO's score of the Clinton health plan is that the private-sector mandates accounted for around 60 percent of the Clinton health plan's total cost, the remainder being (traditional) government spending.  So how is it that the CBO made the full cost of the Clinton health plan apparent to the public in 1994, but may now be revealing only 40 percent of the cost of the Obama health plan?...

The Medical Loss Ratios memo is the smoking gun.  It shows that indeed, Democrats have been submitting proposals to the CBO behind closed doors and tailoring their private-sector mandates to avoid having those costs appear in the federal budget.  Proposals that would result in a complete cost estimate "” such as the proposal by Sen. Rockefeller discussed in the Medical Loss Ratios memo "” are dropped.  Because we can't let the public see how much this thing really costs.

Crafting the private-sector mandates such that they fall just a hair short of CBO's criteria for inclusion in the federal budget does not reduce their cost, nor does it make those mandates any less binding.  But it dramatically reduces the apparent cost of the legislation.  It is the reason we're all talking about an $848 billion Reid bill, rather than a $2.1 trillion Reid bill.

2.  Now-you-see-it-now-you-don't Medicare cuts. Via Michael Tanner of Cato:

When the Senate Finance Committee released CBO scoring of its health care reform proposal last week, we warned that its claim of reducing future budget deficits was achieved only through dishonestly assuming that Congress will implement a 21% reduction in Medicare payments that is scheduled under current law. We pointed out that Congress has been supposed to make those reductions since 2003, and never has.  Now"”surprise, surprise"”Democrats have introduced a bill to eliminate the scheduled cut, at a cost of $247 billion.  But Democrats cleverly are putting the new spending in a separate bill, so it won't change scoring of health care reform.   Have they no shame?

3.  Transfer of costs off the Federal budget to the states (which the CBO does not score).  Via Glen Reynolds

Gov. Phil Bredesen warned Tuesday that pending federal health care legislation could cost Tennessee far more than the $735 million "best estimate" his administration previously has cited.

The $735 million would stretch over five years, but "in addition, there are huge unknowns for the states in this reform," Gov. Bredesen said, estimating that those costs, if realized, could exceed another $3 billion from 2014 to 2019. . . . "I'm glad they're trying to do it without increasing the federal deficit, that certainly is important," said Gov. Bredesen, a Democrat who has been critical of the plan's impact on states. "But to turn around and increase the state deficits as the way to handle it that does not seem a very appropriate way to do that."

4.  Match 6 years of expenses with 10 years of revenues. From an earlier post:

Bruce McQuain points out something I think has not gotten enough attention in the health care bill.  The new taxes being proposed start in 2010, but the benefits don't begin until 2013 and are phased in through something like 2018.  That means for any 10-year budget look, there are 10 years of taxes but only 6-7 years of benefits.  And even with this trick, the plan STILL adds a trillion dollars to the deficit, even before the certainly more pessimistic CBO numbers come in.


  1. Mesa Econoguy:

    And let's not forget one of the key players here – scumbag Peter Orszag, whose pronouncements were central to the bogus "cost reduction" packaging:

    Severe Economic Dishonesty

    I have seen cost estimates up to $5 trillion. There is no way in hell this won't cost a truckload, and won't destroy innovation (and the entire system). It is one of the worst pieces of legislation ever conceived in the history of legislation.

  2. Link:

    Obama will be on ABC with Charlie Gibson tonight. I took a look at the pre-released transcript.

    Obama literally says that if we don't pass Healthcare, the federal government will go bankrupt. Not since National Lampoon threatened to shoot that dog on its cover, have I heard a funnier threat.

    Here's a another interesting statement from Obama: "I wanted to make sure that [Healthcare] was deficit-neutral. Now, according to the Congressional Budget Office analysis, not only is this deficit-neutral, but it actually reduces the deficit, something that somehow has gotten lost in the debate."

    Isn't it "deficit neutral" only because it 1) will raise taxes on high earners, 2) force young people to buy policies that aren't age-risk adjusted, 3) uses ten years of revenue but only seven years of outlays, and 4) has shunted a few hundred billion of expense to the side to be covered by "cuts to be named later."

    There's a personal tell from Obama about his interest in Healthcare: "This will be the single most important piece of domestic legislation that's passed since Social Security. ... seven presidents and seven Congresses failed to get this done." Obama wants that A minus.

    Interestingly Obama admits that: " ... we have a structural deficit. We take in 18 percent of gross domestic product in taxes, and we spend 23 percent. " He's intent on making it 29 percent.

    Lastly, no surprise that Charlie Gibson didn't ask any hard questions about any of this. Gibson instead focused on how hard it must be to herd 60 cats, which Obama of course blamed on the Republicans.

    Saints preserve us,

    ABC transcript here: http://abcnews.go.com/WN/charles-gibson-interviews-president-obama-full-transcript/story?id=9345954&page=1