Michael Cannon (CATO) on Baucus Bill

Thursday, October 8, 2009


Michael F. Cannon, director of health policy studies:

The CBO score of the Baucus bill is like a mystery novel with the last 50 pages missing. It fails to reveal both the full cost of the bill and the budget gimmicks that Mr. Baucus uses to hide that cost. Sadly, the CBO has limited ability to comment on these items. They did comment on the “Sustainable Growth Rate” mechanism*, but the off budget costs are not part of their oversight.

The Baucus bill will not reduce the deficit, and it would ultimately cost taxpayers more than $2 trillion—just like every other bill Congress has produced so far.

The biggest gimmick employed by the bill is that its individual mandate pushes more than half of the legislation's cost off-budget, and onto businesses and individuals who will have to shoulder that burden. A real-world parallel already exists in the Massachusetts health care plan, where private-sector mandates account for 60 percent of the cost. In 1994, CBO counted those mandated private payments in the federal budget, and it helped kill the Clinton health plan. This time around, Democrats were very careful to craft their mandates so that they just barely avoided having the CBO include those payments in the federal budget. But the CBO's decision does not change the fact that those private-sector mandates are part of the cost of this bill.

The second-biggest gimmick is assuming that Congress will let the "Sustainable Growth Rate" cuts in Medicare physician payments to occur. Starting in 2003, Congress has repeatedly blocked those cuts, and there is no reason to think that Congress will behave any differently in the future. So yes, provided that the sun rises in the West, the Baucus bill would reduce the federal deficit.



*For example, the sustainable growth rate (SGR)

mechanism governing Medicare’s payments to physicians has frequently

been modified (either through legislation or administrative action) to avoid

reductions in those payments. The projected savings for the proposal reflect

the cumulative impact of a number of specifications that would constrain

payment rates for providers of Medicare services. In particular, the proposal

would increase payment rates for physicians’ services for 2010, but those

rates would be reduced by about 25 percent for 2011 and then remain at

current-law levels (that is, as specified under the SGR) for subsequent

years. Under the proposal, increases in payment rates for many other

providers would be held below the rate of inflation (in expectation of

ongoing productivity improvements in the delivery of health care). The

projected longer-term savings for the proposal also assume that the

Medicare Commission is relatively effective in reducing costs—beyond the

reductions that would be achieved by other aspects of the proposal—to

meet the targets specified in the legislation. The long-term budgetary

impact could be quite different if those provisions were ultimately changed

or not fully implemented.