Critical Condition

Krugman, Obamacare, and the ‘Doc Fix,’ Again

During the yearlong debate over Obamacare, the law’s apologists returned over and over again to the supposed fiscal benefits flowing from its provisions as a top selling point. Pass Obamacare, they said, and we’ll have health insurance for everyone, painless cost-cutting to slow rising premiums, and deficit reduction to boot. Its win, win, win!

No one believed them, of course. The claim of deficit reduction may have provided a fig leaf to allow some wavering congressional Democrats to vote yes, but it didn’t convince a skeptical electorate. Most Americans have too much common sense to buy the argument that what the nation needs to get its fiscal house in order is a new trillion-dollar-plus entitlement program, piled on top of the unaffordable ones already on the books.

Sure, on paper the Democrats might be able assemble “offsets” to make it look like the program was “paid for.” But even a casual review of the legislation and associated analyses reveals what most people intuitively know to be the case: that Obamacare combines dead-certain entitlement expansion (for at least 30 million people, and probably many millions more) with budgetary sleight of hand and “pay fors” that are either phony or altogether implausible.

Nonetheless, as the House readies a repeal vote for this week, Obamacare enthusiasts are back at it again, claiming once again that Obamacare supporters are practitioners of fiscal discipline, while those who want to undo the largest expansion of government in nearly half a century are the budget busters.

To be sure, it’s a tough sell, but Paul Krugman of the New York Times is eager to give it a try nonetheless. He claimed in his Sunday column that the Republican contention that Obamacare is a budgetary disaster amounts to a “war on logic.”

But Krugman’s attack is itself illogical, and inaccurate too. He focuses most of his attention on the so-called “doc fix,” which is the periodic legislation passed by Congress to prevent deep and unrealistic cuts in what Medicare pays for physician services. Republicans have argued, accurately, that the accounting for Obamacare omits the “doc fix” spending, and that if it were included, the supposed deficit reduction from Obamacare would vanish altogether, even before the other gimmicks and implausible assumptions were exposed and removed.

Krugman contends that this Republican argument is illogical because, in effect, the real “baseline” of federal spending already includes higher physician fees. With or without Obamacare, Congress is going to spend more on physicians, Krugman suggests, therefore Obamacare shouldn’t get charged for it.

But that’s not what’s really going on here. If Krugman’s analysis were accurate, why does Congress go through the annual agony of a “doc fix” at all? Why haven’t they just passed a permanent solution already and gotten it over with?

The answer is that, while Congress doesn’t want to cut physician fees, it hasn’t wanted to pile the costs onto the national debt either. What has held back a permanent solution is the inability to find $200–$300 billion in acceptable “offsets” to make sure a permanent fix doesn’t add to the deficit.

When President Obama assumed office, he wanted his health bill and a permanent “doc fix” too, but he didn’t have enough flimsy offsets to grease the way for them both. So he came up with a new “solution”: use the offsets to pave the way for Obamacare’s spending, and exempt the “doc fix” from the need for offsets at all. This would create the perception of “deficit reduction” from Obamacare even as an unfinanced “doc fix” ran up the deficit by an even larger amount.

At the end of the day, even some Senate Democrats balked at this shameless sleight of hand and blocked the effort to pass an unfinanced and permanent “doc fix.” But the issue remains very much unresolved, and the administration has yet to disavow their push from last year to pay higher physician fees with borrowed money.

Krugman also seems completely unaware that the Medicare cuts that are supposed to pay for Obamacare’s entitlement spending are of the same type as the physician-fee cuts he now wants to assume away. They are arbitrary and unrealistic too, so much so that the chief actuary for Medicare considers them entirely implausible. He projects that if Obamacare’s Medicare cuts were allowed to remain in effect for long, Medicare’s payment rates would fall below those of Medicaid, which are so low that Medicaid patients often have trouble accessing care. And yet Obamacare’s apologists want us to believe we can safely erect a massive new entitlement based on the assumption of future savings from these cuts.

In truth, the Krugman critique doesn’t lay a glove on the Republican argument. He doesn’t even try to defend the CLASS Act, another new entitlement for long-term care. As a start-up program, CLASS collects $70 billion in front-loaded premiums during its first decade. Krugman and others want to count this money toward Obamacare, even though every analysis available shows CLASS will itself need a bailout when its costs balloon beyond ten years. And then there’s the so-called “Cadillac” tax that starts in 2018. The tax is so unpopular with Democratic constituencies that President Obama was never willing to collect it himself (if reelected, he will leave office no later than January 2017). But Obamacare’s defenders argue this tax can be counted on to produce trillions in new revenue beyond 2020.

If liberals and Democrats want to make the fight over Obamacare about taxes, spending, and the budget deficit, Republicans should allow them to do so. The public has already taken sides in this fight. Taxpaying Americans are never going to be convinced that the government has found a way to give away new benefits to millions of people, with no cost to them or anyone else.

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