ObamaCare vs. the Fiscal Responsibility Commission
15 March
Today I think health care reform legislation has about a two in three chance of being enacted into law. The legislative dynamic is volatile and my estimate changes at least daily.
For this post let’s assume for a moment that the President is successful, and that he soon signs two health care reform bills into law.
The President has created a Fiscal Responsibility Commission by Executive Order. That Commission is supposed to report its recommendations by December 1, 2010.
Part of that Commission’s Presidential mandate is:
[T]he Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.
The President is pushing for enactment of a large new health entitlement. In addition, the pending legislation would slow the growth of Medicare and, to a lesser extent, Medicaid spending. It would also raise taxes.
CBO says the new health entitlement would be more than offset by a combination of the “reductions” in Medicare and Medicaid spending and the proposed tax increases. I think CBO is wrong in their long run estimate, but will set that aside for this discussion.
Problem: Those “reductions” in Medicare and Medicaid spending are from an unsustainable trend, what budgeteers call an unsustainable baseline. The growth of Medicare and Medicaid spending are, along with Social Security spending growth, the main drivers of our long-run fiscal problem.
If the pending health bills are enacted, I anticipate their repeal will be topic A for the Fiscal Responsibility Commission. It’s an obvious starting point for the new Commission.
Actually, a better long-term fiscal policy solution would be to leave the “offsets” in place and just repeal the new spending promises. Pocket the enacted Medicare and Medicaid savings for deficit reduction (some would include the tax increases as well) as an initial down payment on our long-run fiscal problem, and just repeal the deficit-increasing portions of the new laws.
This is a different view from that of some Congressional Republicans who have argued that the Medicare savings in the proposed legislation are too harsh. I’d save even more money if I could (albeit in a different way), I just wouldn’t spend the savings on a new entitlement program.
Of course if you were to repeal the new health insurance subsidies, then the individual mandate becomes unaffordable for millions of individuals and families in the rough middle of the income distribution. If the subsidies were gone, Congress would be unwilling and unable to sustain the mandate. You’d have to repeal that.
And without the mandate, guaranteed issue and community rating wouldn’t work. (Some would argue that the mandate is so weak that they won’t work even with the proposed mandate.)
Repealing one trillion dollars of new federal commitments over the next decade, and even more beyond that, would be a great first step for a Fiscal Responsibility Commission. And since those promises aren’t scheduled to be delivered for at least four more years, you wouldn’t be taking something away from people who are already receiving the benefits. This would make repeal a smidge easier politically.
I hope that the pending health legislation is not enacted into law. If it is, fiscally responsible legislators, including those on the new Fiscal Responsibility Commission, should include in their formal recommendations repeal of all the deficit-increasing provisions of these new laws.
A similar argument could be made for the Medicare drug benefit, or for almost any previously-enacted entitlement expansion. I think there is a practical political and legislative difference between a benefit that has been enacted and promised but is not yet being delivered, and one which is already delivering benefits. It’s easier to “cancel” a new health insurance entitlement scheduled to begin 4-5 years from now, than to “repeal” or dial back a Social Security or Medicare benefit being received today by millions. (For the record, I’m quite open to all of the above.)
The President boxes himself in
Six of the 18 members of the Fiscal Responsibility Commission are current Republican members of Congress: House Members Dave Camp, Jeb Hensarling, and Paul Ryan, and Senators Tom Coburn, Mike Crapo, and Judd Gregg.
If these health bills are enacted, I expect all Congressional Republicans will vote no on final passage, including the six listed above.
I assume those six Members of the Commission will push for something like what I describe above. My proposal should not surprise anyone who gives it a moment’s thought. It’s the obvious first step.
The President and his team have admirably maintained complete flexibility on what the Commission should consider. All options are on the table, they say, and it’s not our job to take options off the table. Kudos to the Administration for doing this, especially when they will have AARP & Friends pushing them to rule out changes to major entitlement programs.
But how does the Administration answer the following questions:
The Administration has said that all policy options are on the table for the Fiscal Reform Commission. Would that include repeal of all or part of a new health care reform law or laws?
Is repeal of the proposed trillion dollars of new entitlement commitments over the next ten years, and even more beyond that, an option that the President’s Fiscal Reform Commission should consider?
Wouldn’t repeal of the new entitlement, while leaving the deficit-reducing elements of those bills in place, be a significant first step toward closing our long-term fiscal gap?
I expect Administration spokespeople would try to duck these question by saying the legislation as a whole reduces the deficit in the short-run and the long-run. If given, such an answer would be nonresponsive, because the question is instead whether the President is willing to consider recommendations to repeal only those parts of (hypothetical) new laws that would increase the deficit.
I can easily imagine the Commission breaking down over this question even before it gets off the ground. The President and Congressional Democrats would not want to give up their hard-won victory (if they achieve one) so quickly, and Republicans would insist on it as part of any long-term deal.
If I’m right, then one side effect of enacting the pending health care reform legislation would be to reduce the probability of a successful Fiscal Responsibility Commission.
(photo credit: Official White House photo by Craig Kennedy)
Related Posts
(best matches are listed first)- What is the goal of the President’s Fiscal Commission?
- Error of Commission
- The Administration’s flawed health care argument threatens their fiscal policy strategy
- Dr. Krugman telegraphs the Left’s long-term fiscal strategy
- Fiscal stimulus camps
- America’s long run fiscal problem is spending growth, not taxes
- CBO kills the President’s Medicare commission proposal
- CBO Director Elmendorf destroys a core Presidential health care argument
The whole Obamacare episode is just a symptom of an out of control federal government that has been spending at unsustainable levels for the last few decades. Obama just upped it a notch or two (or three) and has decided that spending and crippling levels of debt aren’t a problem. You’re talking about people that view money as an abstraction and spend accordingly. The reality is that the political process in this country is broken and that more than likely the United States will have to default on debt at some point in the future. Obamacare will just put us there sooner.
I've been pondering two questions recently re: the proposed ObamaCare package, at least so far as we've heard it described. First, since all the collection activity would start immediately and no benefits would be provided for four or more years, that means that for those four initial transition years we would be paying TWICE for health insurance: one deduction for our existing coverage, and one for the benefit that we'd not yet be enjoying. It's not like we could just give up our existing coverage for those four years of preliminary cost collection now, is it? So kiss your current net income level goodbye. Second, who out there is confident that our congress is just going to let that initial collection of money sit in some "lockbox" or "trust account" for those first four years? They will spend it on something else & figure that when the time comes, they'll cash in an IOU at Treasury…. Shades of Social Security!
It's not just smoke 'n mirrors, it's an entire flippin' FUN HOUSE.
Here's an easy solution! Let the insurance companies insure the poor and those over 65 (Medicaid and Medicare recipients) and the Federal government can insure those under 65 with jobs. This would eliminate the future entitlements problem while also eliminating the costs of insurance that are crushing businesses and workers.
What's that you say? The insurance companies aren't interested in that deal? They only want to insure the customers that will bring them billions of profits? They like our current system where the government takes care of the uninsurable without any ability to offset those costs by including the people who are actually profitable to insure?
Hmm… I can see why they like that system. Now tell me again why I, as a US taxpayer, should like that system?
Many feel that the requirement in Obamacare of an individual mandate to buy health insurance exceeds Congress' constitutional powers, and could be challenged and perhaps overturned by the Supreme Court. Keith, could you please comment on this?
If you need to name something like say, A Fiscal Responsibility Commission, to drive home a political point about how fiscally irresponsible you've been you have already eroded any confidence that you can be fiscally responsible. Irony came to Washington and realized it wasn't needed and went home.
Keith's post is on the money (pardon the pun) and reflects a few points I've been emphasizing on various fiscal policy blogs for many months.
One is that the whole concept of "offsets" and "deficit-neutrality" (even leaving aside the dubious assumptions of cuts in projected spending) is terribly misleading in its false implication that creating this new entitlement would not make substantial mitigation of our long-term fiscal imbalance problem politically harder (and therefore further delayed and more costly due to delay) and even more painful, both because these "offsets" use up the politically easiest, least painful means of reducing projected spending and of increasing tax revenue to "fund" the new entitlement (which will be hard to later eliminate or even reduce greatly) rather than to reduce future deficits and debt-to-GDP.
As I've written previously, I hope any healthcare “reform” legislation that establishes a hugely expensive new entitlement is delayed long enough for that new entitlement to be considered within the comprehensive framework of the president’s fiscal commission (and outside commissions). If it’s worth doing, it should be worth doing in light of the additional sacrifices elsewhere that it would necessitate, and if not, it’s not worth doing, by definition. And because all such trade-offs between policy choices will be identified and quantified, all the misleading talking points about “offsets” and “not adding a dime to deficits” will be stripped of their rhetorical value. In other words, I prefer a rational approach to fiscal policy — that is, a rational approach to trade-offs through which competing desires and priorities are set against one another and people seek to optimize the set of chosen options (within the constraint of what is politically feasible, given differences in priorities among different people/segments), rather than making commitments outside of the context of the sacrifices necessitated by making those commitments, given finite resources and a fiscal imbalance problem we must solve.
Another point Keith makes is that supporters of Obama's/Democrats' healthcare "reform" have constantly made a "Rock Soup" argument http://en.wikipedia.org/wiki/Stone_soup#Story — that they are offering a package with a wonderful benefit (cost control), even though their package contains very few elements that actually provide that benefit and is loaded with very costly elements (huge spending to subsidize coverage for many of the currently uninsured, as well as other spending such as closing the Medicare "doughnut hole") that seem unnecessary for the purpose of obtaining the stated benefit (and at best they offer only a very vague assertion of some necessity of those other elements to achieve the cost-control benefit (e.g., "To make progress on cost, we need everybody in the system".
For your entertainment (maybe), below is a fictional but representative "interview" I created to illustrate the Democratic argumentation on healthcare "reform". As a note, Republicans have been lame, too. I'm just discussing the Democrats here.
Q&A with an advocate of Democratic healthcare "reform" (the one answering the questions).
Q: You want government to establish a new entitlement that will increase government spending substantially via subsidies. Should we do that, given the enormous, unsustainable long-term fiscal imbalance we already face?
A: We need this healthcare reform because our current course is unsustainable. Healthcare costs will skyrocket and eventually consume our budget, depress wages, etc., etc., so the status quo is simply unacceptable.
Q: But will your plan mitigate that problem?
A: The status quo is simply unacceptable.
Q: You didn’t answer my question.
A: We need this healthcare reform package because it contains elements that will bend the cost curve down while also INCREASING quality of care. Stuff like comparative effectiveness research. And much more preventive care.
Q: Will anyone’s quality of care decrease? Will anyone have to make such a sacrifice?
A: No. People will just end up taking a more effective, less expensive blue pill instead of a less effective, more expensive red pill. It’s win-win-win all around. We should all say to this healthcare reform package what Seinfeld’s mom always said to him: “How could anybody not like you??”
[continued below]
[continued from above]
Q: How will that preventive care yield substantial savings?
A: Isn’t that obvious? It’s much less expensive to catch an illness early than to treat it after it’s gotten much worse. Duh.
Q: But aren’t you forgetting to factor in the cost of all that broadly-provided preventive care (screenings, etc.) to people who don’t have that illness at all? And don’t the studies show that a broad expansion of preventive care actually would NOT net out saving us money (even leaving aside the additional factor of some people dying younger and thus collecting less in retirement benefits)?
A: Sounds like you want people to get really sick or even die from illnesses that could have been treated earlier, and you prefer us to pay even more to treat them. How horrible.
Q: No, that’s not…never mind. So back to this comparative effectiveness research and other elements that you say will bend the cost curve (e.g., medical IT). Why is it that we have to adopt this entire, expensive package of “reform” in order to implement and get much of the benefit from those initiatives?
A: It’s all tied together. The knee bone is connected to the thigh bone. Know what I mean?
Q: Well, can you explain?
A: We can’t bend the cost curve unless everyone is covered – unless everyone is in the system.
Q: Can you please explain?
A: The status quo is simply unacceptable.
Q: But…ok, forget it. So when you say we’ll bend the cost curve, are you saying just that at some point in the foreseeable future you think the slope will be lower than it would be with no changes at all, or are you saying that at some point in the foreseeable future we’ll be spending LESS than we would be even net of all these new subsidies, and so much less that the present value of projected spending will be lower than otherwise?
A: We need to bend that curve. Current course unsustainable. Status quo unacceptable. ‘nuff said.
Q: If this were such a big money-saver, such a great investment, why do we need all those things you’re calling “offsets”?
A: Ahh, glad you mentioned offsets. Did I mention that we can do all these great things without adding a dime to deficits even over the long term?
Q: Is that something we can really safely assume?
A: Oh yeah. CBO scored it that way, so you can take it to the bank. After all, if we can’t even agree on the referee, we can’t get anything done, and CBO is clearly the trusted referee, right?
Q: Yes, CBO is an appropriate referee, but don’t their scoring rules require them to score a plan assuming that ALL the policy changes in the plan are actually implemented, regardless of how unlikely some of those assumptions may be, and hasn’t CBO explicitly expressed doubts about the likelihood of implementation of some of those future cuts in projected spending that you call “offsets”?
A: Hey, CBO is the referee. Stop being unreasonable, man.
Q: But…whatever. Listen, putting aside the question of whether or not the assumptions of those “offsets” are realistic, even if we assume that those “offsets” will really happen, won’t it make it more politically difficult and more painful to eventually solve our long-term fiscal imbalance problem if we use up (as “offsets” for a new entitlement) the politically easiest and least painful sacrifices?
A: What sacrifices? No sacrifices. All we’re doing is getting rid of wasteful and bad healthcare, taking away excess payments to greedy insurers for Medicare Advantage, and asking really, really rich people to accept expiration of obscene tax cuts they got from Bush.
Q: Whatever. What about my question about using those supposed savings and incremental revenues to “offset” spending on a new entitlement rather than using them to help us solve the long-term fiscal imbalance problem?
A: That long-term fiscal imbalance problem is a healthcare problem. We’re gonna solve that by bending that curve. Yup, bending that curve…with the blue pill… which also means better quality for everybody. Or would you rather keep the status quo, have lousy healthcare, and continue on our unsustainable course?
Q: But…never mind. Let’s just stop here.
A: I’ve overpowered you with my rational arguments, haven’t I?