White House summit


Obamacare is a Budgetary Disaster

Congressman Paul Ryan’s systematic dismantling of the argument that Obamacare would cut the budget deficit, delivered at the Blair House “summit” meeting, has gotten a lot of attention in recent days, and deservedly so. The Wall Street Journal ran the full text of his presentation on its opinion page yesterday and amplified his arguments in an editorial of its own. At Blair House, neither the president nor any other Democrat present offered a direct rebuttal to Ryan’s critique. The president chose to change the subject instead.

This week, however, top administration officials have come forward with a belated defense — of sorts.

First, OMB Director Peter Orszag penned a blog post taking issue with one of Ryan’s points, namely that the plan relies on ten years of offsets to pay for only six years of spending. And today, Orszag and White House Health Reform Czar Nancy-Ann DeParle have an op-ed in the Washington Post that expands upon Orszag’s post.

Orszag and DeParle start by agreeing with Ryan that delaying the start date of an entitlement expansion is a tried-and-true budget gimmick, designed to push the full cost of the additional spending outside of the “budget window” covered by a cost estimate.

But, not to worry, they say. In this instance, it’s not a gimmick because the deficit reduction from their plan just keeps growing over time. They claim the president’s health plan would produce deficit reduction of $100 billion over ten years and $1 trillion in the second decade.

Of course, there’s another reason besides balancing revenue and spending to push the start of an entitlement back, and that’s to make the ten-year cost look much smaller than it really is. Recall that the president promised in his address to Congress last September to deliver a bill that costs only “$900 billion” over a decade. The new entitlements the Democrats want to create would cost much, much more than $90 billion per year. In fact, the Congressional Budget Office (CBO) says they will cost about $200 billion per year by 2019. And so, to get the media to now say his plan costs only “$1 trillion” (what’s $100 billion among friends!), the administration delays the coverage expansion provisions until 2014. Never mind that the president also says the uninsured can’t wait a day longer for the legislation. Once enacted, he would make them wait — for four years.

As Ryan noted, however, once the program did get up and running, costs would soar. The Senate Budget Committee Republican staff estimates the Senate bill’s cost at $2.3 trillion over ten years when fully implemented.

In their Post op-ed, Orszag and DeParle do not even attempt to address the many other points Ryan made which expose the dubious assumptions and sleight of hand behind their deficit-cutting claims.

For instance, the health reform bill is filled to the brim with Medicare changes, but the one Medicare provision the president and the Democrats want to pass separately from the health bill is the so-called “doc fix,” which would repeal a cut in Medicare physician fees at a cost of $371 billion over ten years. Of course, splitting their agenda into two or three bills doesn’t change the total cost. When the “doc fix” is properly included in a tally of what the president is pushing, all of the supposed deficit reduction vanishes.

Then there’s the double-counting that Ryan exposed. The president’s plan starts up yet another entitlement program, providing long-term care insurance. Enrollees have to pay premiums for a number of years before they qualify for any benefits. Consequently, at startup, there’s a surplus of premium collections — $73 billion over ten years, according to CBO — because no one qualifies for the benefits yet. The president and his team count these savings against the cost of health reform — even though the money will be needed later to pay out long-term care insurance claims. When this gimmick is taken out of the accounting, the president’s health proposal goes even deeper into the red.

Over the long-run, the administration’s claim of large-scale deficit reduction hinges on the dubious assumption that future elected officials will demonstrate more political courage than those in office today.

For most of last year, the president said that he would “bend the cost-curve” in large part by imposing a new tax on “high-cost” insurance plans. The tax would hit more and more middle class beneficiaries each year because the threshold for determining what constitutes a “high cost” plan would grow much more slowly than medical costs. In fact, after a number of years, virtually all Americans would be in plans at or above the “high-cost” threshold.

House Democrats and their union allies despise this tax. Last week, the president caved in to their pressure and pushed the start date of the tax back to 2018, well past the point when he will have left office. Even so, Orszag and DeParle still claim credit for the massive revenue hike that would occur in a second decade of implementation. They want us to believe we can finance a permanent, expensive, and rapidly growing new entitlement program with a tax the president himself was never willing to collect.

In Medicare, Orszag and DeParle like to highlight so-called “delivery system reforms” the administration has touted. In the main, these are extremely small-scale initiatives and pilot programs. CBO says they will amount to virtually no savings. The big Medicare cuts in the president’s plan come from across-the-board payment-rate reductions. In particular, the president wants to cut the inflation update for hospitals, nursing homes, and others by half a percentage point every year, in perpetuity. On paper, this change produces huge long-run savings. But it does nothing to control the underlying cost of treating patients. It just pays everyone less, without regard to patient need or quality of care. The chief actuary of the program has said repeatedly that these cuts are completely unrealistic for these very reasons. If implemented, he expects they would drive one in five facilities into serious financial distress. And yet Orszag and DeParle want us to believe these savings can be counted to finance the president’s massive entitlement promises.

And massive they are. CBO says the coverage expansion provisions in the Senate-passed bill would cost about $200 billion by 2019, and that cost would rise 8 percent every year thereafter.

But even these estimates understate the true cost of Obamacare. The president’s plan, like the House and Senate bills, would extend generous new insurance subsidies to low- and moderate-wage workers getting insurance through the new “exchanges.” Workers in job-based plans would get no additional help. That means two workers with identical incomes would be treated very differently. Gene Steuerle of the Urban Institute has estimated that, in 2016, a worker with job-based coverage and a $60,000 income would get $4,500 less than someone with the same income but health insurance through the exchange. This kind of inequitable treatment would never last: one way or another, the entitlement would get extended to everyone in the targeted income range, sending the overall costs of the program soaring.

The president started off last year by saying he wanted to “bend the cost-curve” even as he broadened coverage. But after a year of partisan political and legislative maneuvering, all that’s left is a massive entitlement expansion. The new costs would get piled on top of the unreformed and unaffordable entitlements already on the books. It’s a budgetary disaster in the making.

posted by James C. Capretta | 4:03 pm
Tags: Peter Orszag, Nancy-Ann Deparle, CBO, OMB, Obamacare, White House plan, White House summit, budget, chief actuary
File As: Health Care

White House “Summit”: The Premium Dust-Up

At the White House meeting going on right now, a recurring subject of debate has been this question: Will health-insurance premiums increase from the Senate bill?

As usual, the president is playing fast and loose with the facts.

The Congressional Budget Office (CBO) says that premiums would go down in the individual market from the Senate bill for the kinds of insurance offered today. The problem is that people couldn’t get that kind of insurance anymore. They would be forced into more expensive plans, with higher premiums. And so, overall, premiums in the individual market would go up, not down.

Moreover, there are several studies showing why CBO is wrong about premiums declining for current policies.

Here’s one. Oliver Wyman Inc., a respected actuarial firm, did a careful study for the Blue Cross–Blue Shield Association. They found that premiums in the individual market would be 54 percent higher in five years’ time if the Senate bill were enacted, and 20 percent higher for those insured through small businesses.

Why the difference with CBO? The reason is that CBO thinks the individual mandate will be effective in bringing people into the market. That is not at all the view of many, many experts who understand the insurance business. Almost uniformly, they say the mandate in the Senate bill is too weak and won’t work. Consequently, the risk pool will become much less healthy over time, thus driving up premiums.

So, no, Senator Alexander should not at all concede the point. He’s right. If the Obama plan were enacted, premiums in the individual market would go up, a lot.

posted by James C. Capretta | 12:06 pm
Tags: Lamar Alexander, White House summit, White House plan, CBO
File As: Health Care

The Summit of Folly

So much for the pivot to jobs

In the latest issue of the Weekly Standard, my colleague Yuval Levin and I have a short editorial on the White House "summit"on health care coming up later this week. Here's a short excerpt:

It is now clear that the “summit” the president has called for February 25 is not intended to consider different approaches to health care financing, but rather to create an illusion of momentum that might just lull disoriented congressional Democrats into ramming the health care bill through the budget reconciliation process....

Leading up to the summit, Harry Reid, Nancy Pelosi, and White House officials aim to produce a bill that bridges not the yawning gap between Democratic and Republican proposals but the technical differences between House and Senate Democrats. The House and Senate bills do differ on some issues—a government insurance plan, the details of tax increases and Medicare cuts—but they agree on the big picture, which would be the essence of a combined bill: a massively ambitious, costly, intrusive, inefficient, and clumsy combination of mandates, taxes, subsidies, regulations, and new government programs intended over time to replace the American health insurance industry with an enormous federal entitlement while failing to address the rising costs at the heart of our health care dilemma.

It would raise taxes in a tough economic time, cut Medicare benefits without putting the program on a sustainable footing, create a new open-ended entitlement as we confront daunting deficits, and displace the insurance arrangements of millions.

The public has had a good look at all this for a year, and has hardly been tentative in its judgments....

One way or another, this ill-advised legislative process is nearing its end. It will either conclude with the Democrats putting their blinkered and misguided proposal aside, at last to pursue genuine, incremental, modest, and practical health care reforms addressed to the actual problems our system confronts, or it will end with the passage of a ruinous bill rejected by the public and likely to exacerbate both the collapse of our public finances and the explosion of health insurance costs.

It is now up to Republicans and the many Democrats in Congress who increasingly see the folly of their leaders’ ways to make sure this process concludes not with the enactment of Obamacare but with the initiation of a real health care debate. Listen to the voters: Scrap this bill and start over.

The full article is available here.

posted by James C. Capretta | 6:02 pm
Tags: White House summit
File As: Health Care