How big is it? The Congressional Budget Office (CBO) answered this question about the House health-care-reform package with an analysis released Thursday afternoon.
We see that the “less than $900 billion” number cited by House Democrats is a net number. Table 2 of CBO Director Doug Elmendorf’s letter shows that CBO estimates the coverage provisions will add $1.055 trillion to federal spending over the next ten years.
The “less than $900 billion” number comes a little further down in the table. Yes, the new public subsidies for health-insurance coverage will cost more than $1 trillion, but the government will be picking up some money in the name of coverage. Some will come from people who pay a tax penalty rather than buy health-insurance coverage. (Not many. CBO thinks most people will pay for something rather than pay a tax to get nothing.) More money will come from employers opting to pay a fine rather than pay for coverage. Together with some smaller effects, these provisions will offset $162 billion of the cost of health-insurance-coverage subsidies. And the math is $1.055 trillion – $162 billion = $894 billion with a bit of rounding.
While the “more than a trillion,” “less than a trillion” difference can be attributed to an honest disagreement among friends trying to score points in a debate, the claims about the impact on the federal deficit cannot. CBO says that it projects the House bill would reduce the federal deficit by $104 billion over a decade. But it frames it in a way that reminds one of when the Wizard of Oz told Dorothy and her friends “pay no attention to that man behind the curtain.”
CBO operates on the assumption that the future will be what the law says it is. If Congress passed a law saying the sun would be green beginning with tomorrow’s sunrise, then CBO would begin to take that as truth. As soon as the president signed the law, CBO analysts would begin to factor in its implications to their analyses of the federal budget. Green sun? Better see what the impact will be on crop yields and what that implies for the cost of agriculture subsidies.
On page 14, CBO points out some of the really unlikely things that its belief that “the law is what the law says” leads to. Like the likelihood that the formula in law that leads to cutting Medicare payments to doctors by 21 percent in 2010 will actually be implemented. Or, more subtly, that Congress really will hold the rate of increase in per-unit payments to large classes of Medicare providers to less than the rate of inflation for an extended period of time. With understatement approaching that of Emperor Hirohito’s assessment in August, 1945, that “the war situation has developed not necessarily to Japan’s advantage” CBO observes, “The long-term budgetary impact of H.R. 3962 could be quite different if these provisions generating savings were ultimately changed or not fully implemented.”
– Hanns Kuttner is a visiting fellow at Hudson Institute.