The Corner

Health Care Spending, Again

Jonathan Chait takes issue with a post of mine from Monday about the fiscal component of the health-care debate. Unfortunately, he gets his facts wrong. My response, after the link (on the off chance that some of you would rather skip a very long post on health-care financing).



I argued that Paul Krugman was wrong to assert that arguments about the “doc fix” were central to a document that House Republicans put out last week or to the Republicans’ fiscal case against Obamacare more generally, that Krugman was careless in describing the issue, and that he then ignored the actual arguments Republicans make about the real costs of the law. Chait, like Krguman, begins with the doc fix, writing:


I’ve written about this a million times, and it’s pretty simple. In 1997, Congress enacted a change to the formula for reimbursing doctors under Medicare. The change accidentally slashed physician pay far lower than intended. Congress has been cancelling out the reimbursement cut ever since. Republicans constantly claim that the cost of continuing to do so — which isn’t really a cost, just a failure to capitalize on an unintended future saving — is part of the “real” cost of the Affordable Care Act. Or, like Levin, they claim that Democrats “bought” the support of doctors by promising a long-term repeal of those cuts.


Well, not quite. Chait suggests here that the cost of the doc fix is just assumed to be incurred each year—that it’s basically part of the baseline. But if that were the case, why would Congress go through the painful process of passing it each year? They do it because the smaller annual doc fixes (which are not part of the baseline) are easier to offset with other spending cuts while a single permanent fix—which would add several hundred billion dollars to the national debt—would be more difficult to offset. Doctors’ groups don’t like the uncertainty of the annual fixes, and so when they were asked to support the Democrats’ health-care bill, they pressed for a permanent fix, despite the cost. In their first draft of the health-care bill, in July of 2009, House Democrats sought to include such a permanent fix in the bill itself, and believed that the tax increases in the bill and their various efforts to game the CBO process with promises of future cuts would be enough to offset the required cost. They were not. The CBO reported that, even with all the various taxes and gimmicks it contained, the draft of the bill that contained the permanent doc fix would increase the deficit by $239 billion over the subsequent decade. The agency also reported that the doc-fix component of that bill accounted for $228 billion of that amount. The solution was obvious. The permanent doc fix was removed from the bill, and the Democrats promised the doctor groups that they would pursue it in a separate measure—a measure that would enact a permanent doc fix without offsets, and so would add about $200 billion to the deficit. They tried to do that after passing the health-care bill (which is why Republicans at the time pressed this point, to make clear that they would consider the cost of such a fix part of the cost of the health-care overhaul), but as it turned out they could not even get enough Democratic votes in the Senate to pass such a measure. The administration apparently remains committed to doing so, though of course the new Congress will make that only more difficult.


In writing about this on Monday, I did “claim that Democrats ‘bought’ the support of doctors by promising a long-term” doc fix, as Chait says, and that claim is plainly true. But nowhere did I argue that such a doc fix “is part of the ‘real’ cost of the Affordable Care Act.” I merely argued that Krugman was careless with the facts involved, as Chait has also been.


Chait then disputes my assertion that the “deficit reduction” figure Democrats throw around is just a function of the fact that the huge tax increases in the bill are even larger than the huge spending increases, rather than of any reductions in health-care costs. He asserts that neither CBO nor the CMS actuary said the law fails to reduce health-care spending or the growth of costs. To support his point about CBO he links to a CBO document and cites the following quote:


CBO expects that enacting both proposals would generate a reduction in the federal budgetary commitment to health care during the decade following the 10-year budget window—which is the same conclusion that CBO reached about H.R. 3590, as passed by the Senate.


The document he links to does not contain the quote he cites, or anything like it (though that document does warn in no uncertain terms against taking the cost-cutting assumptions in the bill at face value, note the last paragraph). The quote does appear in a different CBO document—the assessment of the final health-care and reconciliation package—where the context helps us to identify Chait’s error. That assessment states that within the period scored by CBO—that is, the first decade after passage of the bill, which is also the period in which the Democrats now argue the law would reduce the deficit—the health-care law will increase overall federal health-care spending:


CBO estimated that H.R. 3590, as passed by the Senate, would increase the federal budgetary commitment to health care over the 2010–2019 period; the net increase in that commitment would be about $210 billion over that 10-year period. The combined effect of enacting H.R. 3590 and the reconciliation proposal would be to increase that commitment by about $390 billion over 10 years. Thus, the incremental effect of the reconciliation proposal (if H.R. 3590 had been enacted) would be to increase the federal budgetary commitment to health care by about $180 billion over the 2010–2019 period.


The CBO then offers a more general assessment of likely effects of the law in the second 10-year period, having laid out numerous caveats about the imprecision of such longer-term calculations, and it is this assessment that Chait quotes from:


In subsequent years, the effects of the provisions of the two bills combined that would tend to decrease the federal budgetary commitment to health care would grow faster than the effects of the provisions that would increase it. As a result, CBO expects that enacting both proposals would generate a reduction in the federal budgetary commitment to health care during the decade following the 10-year budget window—which is the same conclusion that CBO reached about H.R. 3590, as passed by the Senate.


Note that they do not offer a specific figure in this second estimate, or even a range, and so do not allow us to tell if the overall effect over 20 years would be a reduction or an increase in federal health-care commitments. What is clear, however, is that within the budget window CBO scored, and the period at issue in the current debate about the law’s effects on the deficit, the law (even if you accept all its implausible promises of future Medicare cuts) increases government health-care costs by nearly $400 billion, rather than reducing them. It is likely, given the patterns that emerge from the tables at the end of that same document, that the overall 20-year effect would be an increase as well, but CBO did not offer enough details in those tables to allow us to know (and, as the agency is always careful to say, such projections that far out are not very reliable one way or another). In its actual score of the bill, CBO scores an increase in health-costs, not a decrease, as Chait suggests.


He similarly misreads the report of the CMS actuary. Rather than link to the actuary’s official assessment of the health-care law, Chait (through a link to Ezra Klein) points to a paper published by the actuary and several members of his staff in the October 2010 issue of Health Affairs (available here, but only to subscribers) and then picks out a paragraph from that paper that says:


For 2015-19, national health spending is now projected to increase 6.7 percent per year, on average — slightly less than the 6.8 percent average annual growth rate projected in February 2010.


Notice that this describes a 5-year period, not the 10-year period that both the actuary and CMS otherwise use. Anyone who has worked at HHS or the White House can well imagine the meeting that resulted in a decision to find a particular sub-period in which some decrease, however tiny, could be noted and to mention that somewhere in a paper like this. But when it comes to their overall conclusions about the effect of the new law on national health-care spending, the actuaries are not ambiguous, writing in that same paper:


Despite the aforementioned changes in the year-to-year patterns of growth, particularly after 2014, spending on health care is projected to grow 0.2 percentage point faster over the entire projection period (2009–19) than estimated in our February 2010 projections. After implementation of the Affordable Care Act, the health care share of gross domestic product (GDP) is projected to be 19.6 percent in 2019, or 0.3 percentage point higher than previously projected.


In other words, the law fails to bend the cost curve downward, and even bends it upward a bit. Chait also seems to misread the graph he reproduces from that paper, which charts percent changes by year rather than the overall cost curve, and therefore demonstrates not that costs will grow more slowly than they would have without the law over the decade in question, but more quickly. The actuary was equally clear in the actual formal memorandum he prepared assessing the effects of the law (which is much easier to access and does not require a subscription, but didn’t include the bit of misleading cherry-picked data that Chait wanted to use). In that document, he writes: “we estimate that overall national health expenditures under the health reform act would increase by a total of $311 billion (0.9 percent) during calendar years 2010-2019.” (Like the CBO, the actuary also expresses grave doubts in that document about whether the cuts in Medicare spending that the bill calls for could actually be made.)


So, to sum up: Chait misrepresents what I wrote, misrepresents the facts regarding the doc fix question, and misrepresents both the CBO’s and the CMS actuary’s views about the effects of the health-care law. I’m not saying he does all this on purpose. These are complicated subjects, and there is a lot of fog out there surrounding them, much of it these days coming from Democrats who want to obscure the likely effects of the law. Everyone makes mistakes; God knows I make enough of them. But Chait should certainly be more careful before lobbing accusations.


Chait closes by urging everyone in the health-care debate to get their facts straight before they get going. Quite right. Physician, heal thyself!

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