Tag: congressional budget office

Obama’s Other Massachusetts Problem

Even if Democrat Martha Coakley wins 50 percent of the vote in the race to fill the late Sen. Ted Kennedy’s (ahem) term, there are other numbers emanating from Massachusetts that present a problem for President Obama’s health plan.

On Wednesday, the Cato Institute will release “The Massachusetts Health Plan: Much Pain, Little Gain,” authored by Cato adjunct scholar Aaron Yelowitz and yours truly. Our study evaluates Massachusetts’ 2006 health law, which bears a “remarkable resemblance” to the president’s plan. We use the same methodology as previous work by the Urban Institute, but ours is the first study to evaluate the effects of the Massachusetts law using Current Population Survey data for 2008 (i.e., from the 2009 March supplement).  Since I’m sure that supporters of the Massachusetts law and the Obama plan will dismiss anything from Cato as ideologically motivated hackery: Yelowitz’s empirical work is frequently cited by the Congressional Budget Office, and includes one article co-authored with MIT health economist (and Obama administration consultant) Jonathan Gruber, under whom Yelowitz studied.

Among our findings:

  • Official estimates overstate the coverage gains under the Massachusetts law by roughly 50 percent.
  • The actual coverage gains may be lower still, because uninsured Massachusetts residents appear to be concealing their lack of insurance rather than admit to breaking the law.
  • Public programs crowded out private insurance among low-income children and adults.
  • Self-reported health improved for some, but fell for others.
  • Young adults appear to be avoiding Massachusetts as a result of the law.
  • Leading estimates understate the cost of the Massachusetts law by at least one third.

When Obama campaigns for Martha Coakley, he is really campaigning for his health plan, which means he is really campaigning for the Massachusetts health plan.

He and Coakley should explain why they’re pursuing a health plan that’s not only increasingly unpopular, but also appears to have a rather high cost-benefit ratio.

(Cross-posted at Politico’s Health Care Arena.)

Obama’s Health Tax Conundrum

As President Obama is finding out, spending a trillion dollars on health care reform is easy; paying for it is a bit harder. 

Both the House and Senate versions contain huge tax increases.  But they take completely different approaches toward which taxes are hiked and who would pay them.  And, as President Obama discovered in yesterday’s contentious meeting with labor bosses, those differences will not be easy to resolve.

The Senate wants to slap a 40 percent excise tax on so-called “Cadillac” insurance plans, that is plans with an actuarial value of more than $8,500 for an individual and $23,000 for a family.  The tax technically falls on the insurance company that offers the plan, but there’s widespread recognition that insurers will merely pass that tax on to their customers in the form of still-higher premiums. The Congressional Budget Office estimates that initially about 19 percent of insurance plans would be subject to the tax, and union surveys suggest that it could hit as many as 25 percent of union workers.  Moreover, as inflation drives costs higher, more and more plans will be subject to the tax.  That is because the threshold for the tax is indexed to general inflation not medical inflation which runs higher. 

As today’s Washington Post editorial points out, economists and deficit hawks see this measure as one of the few cost-control provisions left in the bill.  Its goal is not just to raise some $150 billion in revenue over 10 years, but to discourage the type of “gold plated” insurance plans that encourage over utilization and drive up costs.  That is why the Obama administration has endorsed this approach.

However, as labor leaders made clear in yesterday’s meeting with the president, this middle-class tax hike is unacceptable.  AFL-CIO president Richard Trumka has even threatened to retaliate at the polls against Democrats who vote for it.  In addition, 124 House Democrats have signed a letter opposing the “Cadillac tax.”  With just a three vote margin, House Speaker Nancy Pelosi cannot afford to have any defections from tax opponents. 

The House, on the other hand, has gone with a “soak the rich” strategy, calling for a surtax on incomes of $500,000 or more a year.  But Democrats already plan to allow the Bush tax cuts to expire next year, raising income taxes for millions of Americans.  An income tax surtax on top of that would mean marginal tax rates of more than 50 percent in many states with devastating consequences for economic growth.  Moderate Democratic Senators like Ben Nelson (Neb.) and even liberals from states with high cost of living like Chuck Schumer (NY) are unlikely to go along with this tax.  And, in the Senate, Democrats can’t afford even a single “no” vote. 

The conventional wisdom in Washington is that a health care bill is inevitable.  But if the growing fight over taxes is any indication, inevitability is overrated.

Congress Chooses the Low Road. Again.

In 2009, congressional Democrats fashioned their health care legislation out of public view.  That enabled them to avoid some public intra-party spats; to hide maybe 60 percent of the cost of the legislation and otherwise game the Congressional Budget Office’s scoring rules; to deny the public enough time to learn about how the legislation would work; and to cram the legislation through the Senate the day before Christmas.  Senate Majority Leader Harry Reid’s backroom negotiations are rightfully infamous.

Now comes word that, rather than follow the usual conference procedure that we all learned about as children, House and Senate Democrats will conduct informal negotiations – behind closed doors, all by themselves, with no C-SPAN cameras – in the hope of crafting the bill that can command 218 votes in one chamber and 60 votes in the other.

Let me be clear that Democrats are not violating any rules of which I am aware.  But one senses that the object here is not the sort of good government or open government that the Left claims to seek.  Rather, the object is power.  As my colleague Will Wilkinson writes, “They seem interested primarily in how a temporary majority can do more, faster, now.”  And a key tactic is to hide from the public as much of the process as possible.

George W. Bush: Biggest Spender Since LBJ

The Congressional Budget Office has released final budget numbers for fiscal year 2009. The numbers allow us to take a last look at the Bush administration’s record on spending from a statistical point of view.

The following three charts show annual average real (or constant dollar) outlays during the tenures of recent presidents. Presidents were in office for either 4 or 8 budget years, except JFK (3 years), LBJ (5 years), Nixon (6 years), and Ford (2 years).

President George W. Bush’s last year was fiscal 2009. Outlays that year were $3.522 trillion, according to the CBO. However, $108 billion was spending for the 2009 economic stimulus package passed under President Obama. Bush was thus roughly responsible for $3.414 trillion of spending in 2009, which includes outlays for the financial bailouts enacted under his watch. (For FY2009, $154 billion for TARP and $91 billion for Fannie and Freddie).

Spending in Bush’s first year (FY2001) was $1.863 trillion, thus he presided over an 83-percent increase in overall federal spending, which includes defense, domestic, entitlements, and interest. Even without TARP and Fannie/Freddie, spending was up a huge 70 percent under Bush over eight years. By contrast, total spending under eight years of President Clinton increased just 32 percent. These are the overall increases in nominal dollars.

Now let’s look at the real annual averages. Figure 1 shows the average increase in total spending under recent presidents. Bush II was the biggest spender since LBJ. His spending increases were far larger than the three prior presidents.

Of course, presidents share spending power with Congress and it is easier for presidents to control discretionary spending than entitlement spending. Nonetheless, the results in these charts reflect the general spending approach taken by the presidents quite well. For example, Bush II was instrumental in adding the Medicare drug benefit, which by 2009 was adding more than $60 billion a year to federal spending.

200912_blog_edwards27

Figure 2 shows total federal spending without interest payments. Presidents have the least discretionary control over interest. The biggest spenders by this measure were again LBJ and Bush II. Note that Bush’s record by this measure is worse than in Figure 1. That is because Bush lucked out with relatively low interest rates on the federal debt and relatively low amounts of federal debt because of four years of surpluses under President Clinton.

200912_blog_edwards28

For Figure 3, I took out both interest payments and defense spending from the totals. So spending includes domestic discretionary spending and so-called entitlement spending–in other words, mainly spending on the growing federal welfare state. By this measure, Eisenhower, JFK, LBJ, and Nixon had awful records. These were the years of massive creation and expansion of federal subsidy programs for the elderly, state governments, and many other groups. By the late-1970s, the creation of new programs had slowed but existing programs continued to grow.

The 1980 election of Ronald Reagan represented a revolt against the rapidly expanding welfare state. His record shown in Figure 3 of just 1 percent real spending growth over eight years was impressive, at least relative to the other presidents of the last half century.

What about Bush II? Figure 3 shows that he was the biggest domestic spender since Nixon. He set the stage for the explosive spending growth we are seeing under President Obama. Big spending was a key cause of Bush’s failure as president both economically and politically, and it is proving just as damaging and unpopular under President Obama.  

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Obama on Health Care: Half Right

President Obama gave what seems like his thousandth exclusive health care interview last night, this one to ABC News’s Charles Gibson.  In trying to sell his health care plan, the president warned that if Congress does not pass legislation controlling health care costs, the federal government “will go bankrupt.”  He also warned that unless health care is reformed, “your premiums will go up.”

 The president is absolutely correct about that.  The only problem is that, according to the president’s own chief health care actuary, the bills that Congress is now considering do nothing to restrain either federal health care spending or total health care costs.  In fact, Rick Foster, chief actuary at the Center for Medicare and Medicaid Services (CMS) says that if Congress passes the bill now before the Senate, health care spending will actually increase by $234 billion more over the next 10 years than if we did nothing. 

And, according to the Congressional Budget Office, the congressional bills do little or nothing to reduce the growth in insurance premiums. Even if a bill passes, premiums will roughly double by 2016, and keep rising after that.   But for millions of Americans the bill will actually make things worse.  According to CBO, the Senate bill would actually increase insurance premiums by 10-13 percent for Americans who buy their insurance through the non-group market, that is those who don’t receive insurance from their employer.  Those 10-13 percent increases are over and above the increases that would occur if we did nothing.    

On the other hand, if the president were really serious about controlling health care costs and lowering premiums, he wouldn’t need to spend trillions of dollars and take over one-sixth of the US economy; he could try some of the ideas written about here, and here, and here.

Strange Bedfellows?

Jon Walker at FireDogLake says I’ve got the wrong smoking gun:

The smoking gun was a manual put out by the CBO in May…It spelled out exactly how much regulation was “too much” regulation. It explained what was the magical threshold that would cause [CBO director] Doug Elmendorf to declare some private market part of the government budget. Now, I’m angry about this for different reasons than the Cato Institute. I think it is insane that there could be any level of regulation that would make the private market part of the federal budget. Either the money is going through the federal treasury or it is not. I don’t think the the CBO director should have the power to see gray areas on this issue…There is no real logic to it, he simply decided what he thought was enough regulation to make something part of the budget.

To be sure, Walker and I have different ideas when it comes to (1) health care reform.  (Not that you asked, but here are my ideas.)  We likewise disagree that (2) the CBO’s May 27 paper was the smoking gun.  That paper laid out the CBO’s (vague) criteria for including “private” financial transactions in the federal budget (and I duly linked to it in my ‘smoking gun’ post).  But the December 13 memo is the first documented instance of Democrats gaming those criteria.  And I disagree that (3) this was all Elmendorf’s decision, (4) the federal budget should reflect only money that passes through the Treasury (instead of all the money that the feds control), and (5) there’s no logic behind the CBO’s criteria.

All that said, there are a couple of areas where Walker and I agree.  For one, he writes:

More importantly, I don’t think something as important as regulation should be written to trick the CBO. It should be written to produce the best heath care system possible, not the best looking CBO score possible.

Hear, hear.  Yet congressional Democrats have been doing just that, gaming the CBO’s rules to hide the implicit subsidies their legislation would provide to large private insurance companies.

For another, he and I both agree that that legislation is little more than a bailout of large private insurance companies and would be worse than doing nothing.

My question for Walker, and for Howard Dean, and for Markos Moulitsas is: will they join me in calling for the Senate to obtain a CBO cost estimate of the off-budget part of the insurance-industry bailout (i.e., the individual and employer mandates)?  Do they think Senate Majority Leader Harry Reid should at least be up front with his base about what he’s asking them to swallow?  Do they think that We, the People deserve to know the whole truth about this bill?

Bland CBO Memo, or Smoking Gun?

This weekend, the Congressional Budget Office released “a very strange memo” titled, “Budgetary Treatment of Proposals to Regulate Medical Loss Ratios.”  You wouldn’t know it from the title, but that little memo is the smoking gun that shows how congressional Democrats have very carefully hidden more than half the cost of their health care bills.

First, a little history.  Like both the House and Senate bills, the Clinton health plan would have mandated that individuals and employers purchase private insurance.  In its 1994 score of the Clinton plan, Bob Reischauer’s CBO included those mandated “private” payments in the federal budget –- i.e., as federal revenues and federal expenditures.

And yet, none of the CBO scores of this year’s bills include the costs of similar individual/employer mandates as federal revenues or federal spending.

My read of the CBO’s score of the Clinton health plan is that the private-sector mandates accounted for around 60 percent of the Clinton health plan’s total cost, the remainder being (traditional) government spending.  So how is it that the CBO made the full cost of the Clinton health plan apparent to the public in 1994, but may now be revealing only 40 percent of the cost of the Obama health plan?

For some time, I’ve suspected the answer is that congressional Democrats have very carefully tailored their individual and employer mandates to avoid CBO’s definition of what shall be counted in the federal budget. Democrats are still smarting over the CBO’s decision in 1994.  By revealing the full cost of the Clinton plan, the CBO helped to kill the bill.

Since then, keeping the cost of their private-sector mandates out of the federal budget has been Job One for Democratic health wonks.  While head of the CBO, Obama’s budget director Peter Orszag altered the CBO’s orientation to make it more open and collaborative.  One of the things about which the CBO has been more open is the criteria it uses to determine whether to include mandated private-sector spending in the federal budget.  The CBO even published a paper on the topic.  Read this profile of Orszag by Ezra Klein, and you’ll see that those criteria were also a likely area of collaboration with lawmakers.

The Medical Loss Ratios memo is the smoking gun.  It shows that indeed, Democrats have been submitting proposals to the CBO behind closed doors and tailoring their private-sector mandates to avoid having those costs appear in the federal budget.  Proposals that would result in a complete cost estimate – such as the proposal by Sen. Rockefeller discussed in the Medical Loss Ratios memo – are dropped.  Because we can’t let the public see how much this thing really costs.

Crafting the private-sector mandates such that they fall just a hair short of CBO’s criteria for inclusion in the federal budget does not reduce their cost, nor does it make those mandates any less binding.  But it dramatically reduces the apparent cost of the legislation.  It is the reason we’re all talking about an $848 billion Reid bill, rather than a $2.1 trillion Reid bill.

If someone sold you a house, or a car, or a mutual fund this way, we would put them in jail.