Rational Arguments

Rep. Ryan is disappointing me.  He has a defense of his “Roadmap” up.  Specifically, he wants to talk about how his plan will affect Medicare.  In his own words:

We do not have a choice as to whether Medicare will change from its current structure. It is being driven to insolvency. An honest debate requires a serious discussion of how Medicare will avert its collapse and be made sustainable. Unfortunately, but not surprisingly, the Democrats’ political machine has attacked my contribution to this debate, making the false claim that the only solution put forward to save Medicare would “end Medicare as we know it.”

The CBO has said that my reform plan, “A Roadmap for America’s Future,” would put Medicare on a sustainable path. The plan protects and preserves Medicare for those enrolled now and for those who will become eligible in the next 10 years, while reforming the program to ensure it will be there for younger generations. Future seniors would have access to the same coverage I enjoy as a congressman.

OK.  First of all, no one is arguing against the fact that Medicare has to change from its current path to be sustainable.  But part of the reason that path was made worse was because of the huge unpaid for addition of Medicare Part D, which was not passed by the Democratic machine.  ARGH.  Look, he’s made me make a partisan argument.  Unforgivable.  Deep breath.

Rep. Ryan, your plan for Medicare is not crazy.  It’s not corrupt.  It’s not morally wrong.  But I’m sorry, it absolutely would end Medicare as we know it.

Medicare right now is a defined benefit plan.  Everyone knows exactly what they are going to get from the government and that’s what happens.  Every year, the government (CMS) figures out how much it will cost to give those defined benefits, and it pays the bills.  There are pros and cons to such a plan, but that’s Medicare as we know it.

You would like to change Medicare to a defined contribution plan.  In that plan, everyone knows how much money (in a voucher) they are going to get every year, and then they go out and buy insurance.  Every year, the government sets how much it is willing to pay, and gives out the vouchers.

A defined contribution plan is NOTHING like a defined benefit plan.  Going to a voucher system, is a total change from Medicare.  It’s the “end of Medicare as we know it”.

Medicare right now is the equivalent of Canada’s single payer health care system.  You want to end that; you want to privatize it.  It’s a radical change.  Own it.  Deal with it.

Your proposal would be a much greater disruption of Medicare than anything in passed in health care reform recently.  Yet many of your colleagues have said that any cuts to Medicare would be horrible.  Did you share this view with them earlier this year?  I ask, because I’ve always felt that the demagoguery about cuts to Medicare was foolish.  I’m not sure you’ve always been consistent.  A wonk would clarify that.

The irony is that you keep talking about the CBO as if they were the gold standard of knowledge in terms of how reform will affect the budget in the future.  Did you share this feeling with your colleagues when they were debating health care reform earlier this year?  I ask, because I’ve always felt the CBO was credible.  I’m not sure you’ve always been consistent.  A wonk would clarify that.

Another irony is that what you are proposing, giving the elderly money or vouchers to buy private insurance, sounds much like the exchanges recently passed in the PPACA.  Right?  How is it different?  Did you share your feelings on the value of this type of setup with your colleagues when they were debating health care reform earlier this year?  I ask, because I’ve always felt the exchanges seemed like something conservatives would always support.  I’m not sure you’ve always been consistent.

A wonk would clarify that.

Just when you thought it was over:

And you thought all talk of a public option health insurance plan was dead. But no, Rep. Pete Stark (D-Calif.) asked the Congressional Budget Office to crunch the numbers on a public plan, funded by premiums, not taxes, and they found the following:

“The Congressional Budget Office (CBO) estimates that the public plan’s premiums would be 5 percent to 7 percent lower, on average.”

Also:

“CBO and the staff of the Joint Committee on Taxation (JCT) estimate that the proposal would reduce federal budget deficits through 2019 by about $53 billion.”

The next year would probably save another $15 billion, for a total of $68 billion shaved off the deficit by 2020.

You can read the full CBO report here.

But look, what I said back then still applies:

It’s just not that important. It’s really not. Maybe there was a time it was, but no longer. Now it’s a withered appendage. No more people will be insured with a public option than without it. Nor will the quality of care differ. It may decrease the total cost of the bill by a few percent, but that’s it. It’s not a path to single payer. It’s not a secret government takeover of care. And I say that not caring whether you hope or fear if either of those things is true.

I’m all for saving another $53 billion a decade, but come on.  We’re spending $2.5 trillion a year on health care.  I applaud the idea of continuing to improve the system, but we need to make bigger changes than this.

I know I harp on health care costs all the time.  Well, almost all the time.  But it’s because they are huge.  Way more than any other country.  And, they’re growing too fast as well.

Now, many claim that the ACA will “bend the curve” and slow the growth of costs.  But how much?  Well, since the CBO has been doing most of the heavy lifting so far, no reason to let them stop now.  CBO director Doug Elmendorf recently gave a talk to the Annual AAAS Forum on Science and Technology Policy on the economic and budget outlook.  What’s the verdict?  Here are outlays for 2020:

Do you see Medicare there?  It’s almost $900 billion.  We’ll be spending more on Medicare than on Defense.  This doesn’t include Medicaid (another $444 billion).  Together, they will cost more than Social Security.  More than interest on the debt.  more than all discretionary (other) spending total.

You want to balance the budget?  Ain’t gonna happen.  Not while health care costs this much.  And we haven’t even added in private spending on insurance, out-of-pocket costs, or the cost of reform (which is small compared to the big M’s).

We need to seriously get a handle on health care costs.  The sooner everyone starts to accept that, the better we’ll be.

In the past, I’ve sometimes been hard on Megan McArdle.  I’m about to do it again.  On the topic of the recent CBO estimate on discretionary health care spending, she writes:

Meanwhile, the CBO just came out and said that the health care reform was slated to cost $115 billion more than they said it would.  Why?  Because they didn’t have time to calculate the effects on discretionary spending such as new administrative capacity, demonstration projects, and continuation of successful short-term initiatives.  As my fiance notes, Olympia Snowe’s demands to slow down the process suddenly seem a lot more reasonable.

The progressive response on this, as I understand it, is threefold:

1. We don’t have to fund this stuff
2. Maybe we’ll cut something else to fund this stuff
3. C’mon, who cares?

Predictably, I find none of these convincing.  Some of the stuff we do have to fund, because the agencies are going to have to have staff to deal with the new requirements; and the stuff we don’t have to fund is the demonstration projects that I was assured were going to bend the cost curve.  So if we save this money in the first ten years, we lose the possibility of lower cost growth after the first decade.

What’s really worrisome, however, is that I’m unaware of any happy surprises where it turns out this thing is going to cost less than expected.  It’s early days, yet, of course–but it’s a little too early to take rapidly mounting cost projections in stride.  We haven’t done anything yet, and we’re somehow already at least $100 billion in the hole.

McArdle is an economist.  She’s the business and economics expert for the Atlantic.  It says so, right there next to her name on her blog.  You would think she might at least try to see if there might be another explanation.  Perhaps the one offered by the Director of the CBO, himself:

The potential discretionary costs identified two days ago include many items whose funding would be a continuation of recent funding levels for health-related programs or that were previously authorized and that PPACA would authorize for future years. (For example, those potential costs include $39 billion authorized for Indian health services that already receive appropriations every year.) CBO estimates that the amounts authorized for those items exceed $86 billion over the 10-year period (out of the roughly $105 billion total shown in the table provided yesterday). Thus, CBO’s discretionary baseline, which assumes that 2010 appropriations are extended with adjustments for anticipated inflation, already accounts for much of the potential discretionary spending under PPACA. That is one of the reasons that potential discretionary effects are shown separately from effects on revenues and mandatory spending in CBO’s cost estimates.

It’s frustrating enough that it’s nearly impossible to counter the misinformation spread by politicians; it’s simply ridiculous that content experts can’t be bothered to check with the source itself to see if they are right or wrong.  Especially, when McArdle is so kind as to claim she knows the only possible explanations, even though many people (including me) offered another one before she published her post.  It takes a special kind of hubris to decide that the other side is wrong without even seeing what their argument is.

Moreover, the snide comment about Snowe and her slowing things down is maddening.  It’s petty, has nothing to do with the CBO numbers, and should be beneath her.

I don’t expect to be restarting my Atlantic subscription anytime soon.

Many of you are concerned about the new CBO forecast:

Congressional Budget Office estimates released Tuesday predict the health care overhaul will likely cost about $115 billion more in discretionary spending over ten years than the original cost projections.

The additional spending — if approved over the years by Congress — would bring the total estimated cost of the overhaul to over $1 trillion.

And, of course:

Republicans pounced on the news, which they called another sign that the Obama administration makes promises it cannot deliver.

Deep breath, people.  I’m serious.

Before I even get into the weeds, I’m inclined to say this.  No one ever said health care reform would be cheap.  And even if this were taken at face value, and it meant that reform was going to cost about $11.5 billion more per year on average than we thought, that would mean that overall health care spending would be less than half a percent more than we thought it would be.  I’m not losing sleep over that.

But it shouldn’t be taken at face value.  Paul Van de Water, a Senior Fellow at the Center on Budget and Policy Priorities, writes:

In March, when CBO estimated health reform’s effects on the deficit, it appropriately included all of the legislation’s impact on mandatory spending. (Mandatory spending, like Medicare and Medicaid, continues from year to year unless Congress passes new legislation to reduce it.)

CBO’s March estimate did not include the legislation’s impact on discretionary spending — the spending Congress provides each year in appropriation bills — because the legislation did not directly affect discretionary spending. Moreover, there’s no way CBO can estimate how the legislation might affect the future discretionary funding Congress will actually appropriate for any specific program or how that appropriation will affect total discretionary spending. (For an explanation of why CBO’s treatment of discretionary spending is necessary and appropriate, see this paper Jim Horney and I wrote on March 25.)

Instead, CBO in March provided a separate table showing the possible discretionary spending that could — contingent on future appropriations legislation — result from enactment of health reform. Yesterday’s letter from CBO simply updated those figures.

While the new figures are indeed larger than the March ones, the biggest single reason is that they include the cost of renewing the Indian Health Service (IHS), totaling $39 billion over ten years. (Many of the health reform law’s provisions continue existing discretionary programs rather than create new ones.) As CBO’s letter points out, that $39 billion is simply a projection of what the federal government is currently spending for the IHS; not a single dollar represents additional real spending.

Aside from $10 or $20 billion of administrative costs, the estimate is based on items that are not currently funded and that may not ever be funded. It’s up to the appropriations committees to make those decisions, and we don’t know what decisions they’ll make. Moreover, because discretionary spending is limited, new programs tend to compete with old programs (i.e., appropriators decide to spend $2 billion on a demonstration project in Medicare and take that money from somewhere else, which means net cost to the deficit is zero). So CBO doesn’t count potential discretionary costs because they may or may not be real, just like it doesn’t count savings that may or may not happen, because they can’t be projected with any sort of certainty.

Bottom line? As has so often the case with health-care reform, there’s plenty of evidence to argue that the bill will save very little money, and plenty of evidence to argue that the bill will save lots of money. Where you end up depends on how you weight different probabilities. But so far as discretionary costs go, it’s worth saying that CBO always separates them from mandatory costs and people don’t generally complain. It’s only when bills get controversial that these quirks of the budget process are given such a sinister cast.

Look, if you want to find a reason to be upset about the law, you shouldn’t have a problem doing so.  You can hate the mandate (even though if you want to prevent gaming the system you need one).  You can hate the fact that it doesn’t address the way we shield ordinary people from true costs, and therefore subtly encourage them to continue demanding expensive and ineffective things.  You can hate that it does nothing to dismantle the private for-profit insurance system.  You hate that it still leaves millions of Americans without insurance, does too little to contain costs, and doesn’t address quality much at all.

But it’s not a lie.  It’s not a trick.  They didn’t game the numbers or pull a fast one.  This bill is just what it said it was, including the cost.

Many, many readers ask:

How are they paying for this?

Where is the money coming from?

There’s no way they can pay for this.  What’s the deal?

You know there’s not way they can possible raise a trillion dollars.  When will you admit they lie?

Deficit reducing?  Come on.

I tried going through the CBO report.  But it’s almost impossible to break the revenues apart from everything else.  Then The Tax Foundation did the heavy lifting for me.  Here’s how it breaks out:

1. $416.5 billion from Medicare spending cuts ($136 billion is Medicare Advantage reductions, $196 billion is fee-for-service rate reductions, $36 billion is DSH payment reductions, and the rest is “other”).
2. $210 billion from an additional 0.9% Medicare Tax on income above $200K for individuals and $250K for married couples, plus additional Medicare tax of 3.8% on investment income for those same people
3. $107 billion from fees on insurers and medical providers
4. $69 billion from penalties from employer/individual “mandates”
5. $52 billion from other net spending cuts (including education reform)
6. $45 billion from Medicaid spending cuts
7. $32 billion from excise (“Cadillac”) tax
8. $149 billion from other revenue provisions

Add that up and you get $1.085 trillion dollars.  Since the bill is projected to cost $938 billion, that’s how you get a deficit reduction of $142.5 billion.

UPDATE: Sigh.  I missed the nice graph they put together.  You can go see it at Austin’s site.

The final bill is reviewed.  I’ll have more when the release the actual analysis:

Comprehensive health care reform will cost the federal government $940 billion over a ten-year period, but will increase revenue and cut other costs by a greater amount, leading to a reduction of $130 billion in the federal deficit over the same period, according to an analysis by the Congressional Budget Office, a Democratic source tells HuffPost. It will cut the deficit by $1.2 trillion over the next ten years.

The source said it also extends Medicare’s solvency by at least 9 years and reduces the rate of its growth by 1.4 percent, while closing the doughnut hole for seniors, meaning there will no longer be a gap in coverage of medication. The CBO also estimated it would extend coverage to 32 million additional people.

Well, it’s more expensive than the other bills, but it also has larger offsets.  That means it’s bringing in more money (taxes) and making more cuts (savings).  These make it deficit reducing.  And, for those of you who still buy into the “more years of taxes than benefits”, it’s WAY more deficit reducing in the second decade, when there are 10 years of taxes and 10 years of benefits.

It’s also going to help trim Medicare (which fiscal conservatives would love in a rational world), close the donut hole (which seniors would love in a rational world), and cover 32 million more people (which liberals would love in a rational world).

Legislation is about compromise.  This isn’t the bill I would write if I were king of the world.  But that’s not the way the world works.  This is better than what we’ve got.

So pass the bill.

I was at the gym yesterday, and a friend asked me what would happen to his insurance premiums under health care reform.  He didn’t seem too thrilled when I told him that many people would see no difference.  Part of keeping what you like means… keeping what you have.  But don’t take my word for it.  The CBO released a report on what would likely happen to insurance premiums under reform.  Here’s the gist:

Group coverage from employers

• This is what most people who get insurance through their jobs have.  The CBO says that in 2016, the average small group market premium would be around$7,800 for an individual and $19,200 for a family.  Without reform, these numbers would be about $7,800 and $19,300. In the large group market, it’s about$7,300 for an individual and $20,100 for a family with reform, and about $7,400 and $20,300 without.  Not much difference at all.
• Additionally, some people (about 12 percent) with coverage in the small group market would get a small business tax credit.  For them, insurance would be about 8 percent to 11 percent lowerthan without reform.

Nongroup (individual) policies

• These are the policies people would get on the exchange.  In 2016, the average individual policy under reform would be about $5,800 and a family policy would be about $15,200, compared to about $5,500 for an individual and $13,100 for a family without reform.
• Most of those people (about 57 percent) would get subsidies, which would cover about two-thirds of the total premiums.
• Now that’s an increase without the premiums, but most people would see a significant increase int he quality of their insurance.  That increase in quality is more than the increase in the cost.  So they still reported it’s a reduction in cost overall.

Se here’s the recap.  For most people there is going to be no difference in the cost of premiums.  Some will benefit slightly from the small business tax credit.  For people in the individual (nongroup) market, actual premiums might rise, but less than the increase in value of their insurance.  Moreover, most of them will be getting financial assistance, so that even so – the cost to them will go down.

Yes, it’s confusing, but likely good news for the administration.

The bad part, however, is that they estimate that the average premium for a family employer-provided plan will be over $19,000 in 2016.  Now it’s just over $13,000.  That’s a big increase.  And it’s still a huge amount of money.  This bill will do very little to contain costs.

As we all obsess over CBO scores and the cost of reform, it’s important to remember that the CBO only cares about federal expenditures.  That’s all.

What that means is that as CBO scores come down, it doesn’t mean that health care is cheaper.  It just means that the federal government is paying for less.  Making changes to the bills that lower the CBO scores do NOT make health care cheaper.

A lower CBO score may mean that states will have to pick up more of the cost.  That’s probably not a good thing.

A lower CBO score may mean that employers have to pick up more of the cost.  That’s potentially not a good thing.

A lower CBO score may mean that individuals have to pick up more of the cost.  That’s really not a good thing.

Know what a lower CBO score does NOT mean?  It doesn’t mean that health care got cheaper or easier to get.  And expensive health care is positively a bad thing.  Think about that the next time politicians are bragging about lower CBO scores.

Were they listening to me?  I don’t care.  The CBO granted my wish and scored the Republican health care reform “bill”.  Let’s hit the high notes.

You remember how Rep. Boehner said that the Democratic plans would “bankrupt America“?  Well, then, I’d assume that his plan would do much more to reduce the deficit that is causing him such concern.  To the CBO!

According to CBO and JCT’s assessment, enacting the amendment would result in a net reduction in federal budget deficits of $68 billion over the 2010–2019 period. That estimate reflects a projected net cost of $8 billion over 10 years for the provisions directly related to insurance coverage; that net cost reflects a gross cost of $61 billion that is partly offset by about $52 billion in additional revenues associated with the coverage provisions. Over the same period, the other provisions of the amendment would reduce direct spending by $49 billion and increase tax revenues by $27 billion.

Ok, not too shabby.  It’s deficit reducing to the tune of $68 billion over a decade.  But remember that plan that was going to bankrupt us?  It will reduce the deficit by $104 billion over the same amount of time.

Well, so it won’t be as good financially.  We can all be assured, then, that it must be covering more people.  Right?

By 2019, CBO and JCT estimate, the number of nonelderly people without health insurance would be reduced by about 3 million relative to current law, leaving about 52 million nonelderly residents uninsured. The share of legal nonelderly residents with insurance coverage in 2019 would be about 83 percent, roughly in line with the current share. CBO and JCT estimate that enacting the amendment’s insurance coverage provisions would increase deficits by $8 billion over the 2010–2019 period.

You’ve got to be kidding me.  The percent of non-elderly people without insurance is going to be “roughly” the same?  What’s the bill for?

So this is the proposal? You want us to throw away the bill currently being debated for one that does “roughly” nothing about uninsurance and would save less money?  Really?

Do you know how frustrating it is to be forced to defend the Democrat’s bill (which I don’t really like)?  I’m mocking you, Rep. Boehner, not because conservatives have no ideas, but because you won’t present them.  Tort reform is not health care reform, and it won’t save that much money.  Deregulating insurance further will not lead to coverage for people with pre-existing conditions.  High risk pools are not going to make things better.  These are old, tired talking points, and you know it.

Come to me with a bill that covers more people than this one and we’ll talk.  Come to me with a bill that improves quality of care significantly and we’ll talk.  Come to me with a bill that actually contains costs and we’ll talk.

But come to me with a bill that does none of the three?  That’s not a sign of someone who takes this seriously.