February 18, 2011
CBO on HR2, repealing the Patient Protection and Affordable Care Act
From Congressional Budget Office, in a letter dated today:
...CBO and JCT [Joint Committee on Taxation] estimate that, on balance, the direct spending and revenue effects of enacting H.R. 2 would cause a net increase in federal budget deficits of $210 billion over the 2012-2021 period ....
Posted by Menzie Chinn at February 18, 2011 02:11 PMdigg this | reddit
But, but, but, but, but....that can't be! You're just relying upon discredited Keynesian economics. The CBO is just trying to expand government. Noted economists Rush Limbaugh and Sean Hannity are just sure that H.R. 2 will reduce the deficit. And I'll bet you could even find a few studies by Heritage and Club for Growth.
Okay, back to reality. I just thought I'd try it out to see how it feels to think like a teabagger.
Posted by: 2slugbaits at February 18, 2011 02:46 PM
It will get distorted. CBO has become a tool when useful and then denigrated when not. As in, this projection will be proclaimed as worthless while Rep. Ryan takes a CBO projection about reduced economic activity, a similar projection, and uses that to say the health law will cut jobs by 800k.
As a fun exercise, try putting "800,000 jobs" into google and you get page after page of people repeating this nonsense. If you don't already know what the CBO report actually said, you'd have almost no way of finding out! (For those who don't, the CBO actually said the law would reduce economic activity by 1/2 percent, which translates roughly to 800,000 jobs, but it then explained that was because people would choose not to work or would choose to work fewer hours because they would have healthcare. In other words, not 800k jobs lost but 800k job openings for people who want to work. The Ryan distortion means we should continue to force people to work, which is an infringement of personal liberty.)
Posted by: jonathan at February 18, 2011 03:42 PM
They cry that the deficit is creating a "crisis" but the first major bill they passed after the election added 900 billion to the deficit over 2 years. The second major bill they passed added $210 billion over 10 years. This is what happens when you live in the upside world where tax cuts increase revenue and cutting spending creates jobs.
Posted by: joe at February 18, 2011 05:39 PM
Joe, HR-1 of the 112th congress is the Continuing Resolution. HR-2 is the "Repealing the Job-Killing Health Care Law Act."
The Tax Cut Extension, Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, or H.R. 4853, was done in the 111th Congress under control of the Dems.
Posted by: CoRev at February 18, 2011 08:16 PM
We are borrowing an extra $210 billion to avoid spending trillions over 10 years? The only way that makes sense is if there are lots of tax increases built into the bill.
This is insanity. Why are so many so gullible? You actually believe the government can create a huge entitlement program that stays on budget? Remind me again why Obama/Pelosi/Reid had to rush this through congress? Why did they have to offer bribes to get the votes? Why are they offering waivers to so many groups?
Several weeks ago, critics singled out a number of unions which had received government approval for exemptions from certain provisions of the law dealing with annual medical spending limit requirements.
And there are more unions who have received waivers in this latest batch, like the Bricklayers Local 1 of MD, VA and DC, the United Food and Commercial Workers Union in Mount Laurel, New Jersey, the Indiana Teamsters Health Benefits Fund, Service Employees International Union Local 1 Cleveland Welfare Fund, and more are listed.
Posted by: tj at February 18, 2011 08:16 PM
This is a joke, right? Surely Menzie, a professional economist is not presenting this quote as useful information. It is well known to be rigged with ignoring the truth of the Doc fix, with several more years of tax increase than years of expense, & with ignoring the negative economic effects of the tax increases it includes.
NOBODY believes that Obamacare is helpful to the budget or that it will lower healthcare costs--it will surely substantially increase them. It has already increased health insurance premiums; mine increased 17% starting this month.
Posted by: Bryce at February 18, 2011 08:48 PM
To the Repubs, a small price to pay for ending soshulism. Freedom isn't free!
Posted by: mclaren at February 18, 2011 10:29 PM
CoRev, I realize the 111th Congress passed the tax cut during the lame duck session. My point is that it was passed after the election and that is relevant because they claimed the election gave them a mandate to reduce the deficit. By "them", I'm referring to Ryan & the rest who claim the deficit is a crisis.
Posted by: joe at February 19, 2011 12:15 AM
democrats spend money supporting their unions =evil, end of the world
republicans spend money supporting their weapons contractors = not 1 cent less for defense!
How about we go back to the Clinton era age of DoD budget being 300 billion, without any extraordinary spending to cover wars based on lies, and use the spare change to pay down the debt?
Posted by: Dennis at February 19, 2011 03:57 AM
Of course, many of the provisions of the health care law show up in private premiums, not in government spending. The press has been replete with stories of draconian rises in private health care rates. This has to be factored into the equation.
I believe most Americans wanted healthcare reform to mean affordable healthcare. For those with private health insurance, the effect has been just the opposite. Hence the Democrats' dubbing in the November elections.
Posted by: Steven Kopits at February 19, 2011 05:01 AM
CoRev Yes, the tax cut extension was passed under a nominally Democratic Congress and signed by Obama. And like a lot of bills there were good and bad parts. The good parts like extending unemployment insurance tend to have a multiplier significantly greater than 1.00, so the long run effect on debt growth is muted. It was the bad parts of the bill, such as extension of the tax cuts, that have a multiplier of less than 1.00 that are what hurt the debt numbers. And the bigger problem is that the good parts of the bill are only for one year, whereas the tax cuts are for two years. Now two year tax cuts wouldn't be so bad in themselves, but you know perfectly well that the GOP will be trying their best to make those cuts permanent...and that would be a disaster. Personally I think HR 4853 was a bad deal and if I were Obama I would have vetoed the bill and allowed the tax rates to increase 1 January.
tj The exemptions you are talking about were always intended to be granted as temporary relief measures. That's because many of the provisions of the healthcare bill itself are phased-in over several years, so the parts of the bill that have not yet kicked into law are being covered through exemptions. That's why the bill authorized the Administration to grant temporary exemptions until various parts of the bill kick in. If the bill didn't allow for those exemptions there would be a shock to the system and folks with coverage today would lose coverage until the bill was completely phased in. All of this was well covered by the press, so I don't know why this Jamie Dupree seems to have missed it. Also, what's with you and union bashing?
Posted by: 2slugbaits at February 19, 2011 05:17 AM
Bryce It is well known to be rigged with ignoring the truth of the Doc fix
Ugh. Do you understand the difference between a change in slope and a change in intercept? The "Doc fix" argument is a complete irrelevance because that was going to happen irrespective of whether or not Obama's healthcare package passed or not. It's like an intercept shift. You have to subtract the "Doc fix" from both sides, so the net effect is zero. Honestly, this point has been made over and over and over again, but for some reason the GOP faithful just don't get it. Poor math skills, I guess.
Steven Kopits I believe most Americans wanted healthcare reform to mean affordable healthcare.
Americans wanted a lot of things. First they wanted healthcare, and a lot of them didn't even have that much. Second, even if they had it today, they wanted some kind of assurance that they would have it tomorrow. And third, they wanted some kind of controls on healthcare costs. The Obama plan satisfied the first two goals. It made small strides towards the third goal, but a lot of the savings were gutted by the GOP. For some reason the GOP found itself defending govt subsidies of useless medical procedures and talking about phantom "Death Panels." But gaining the first two goals carried with it a price. Many conservative voters are always looking for a free lunch, and I'm sure that many of the voters in November were disappointed to find out that Obama's plan did not include a free lunch. If you want expanded coverage you have to pay for it. If you want a guarantee of coverage tomorrow, then you have to pay for it. If you want portability, then you have to pay for it. If want health insurance that will be there when you're sick, then you have to pay for it. If you want to be a free rider, sorry, but that won't wash...you'll have to buy insurance. And isn't it funny how today's conservatives want to cut back on govt employment, but yet fail to realize that govt employee subsidies to private health insurance companies are actually holding down premiums for private sector workers. Again, poor math skills.
Posted by: 2slugbaits at February 19, 2011 06:38 AM
You have nothing to post on what is happening in your home state?
Posted by: spencer at February 19, 2011 06:40 AM
@spencer: Chinn's two previous posts were about Wisconsin politics. And he's a macroeconomist, so unions aren't really his focus.
Posted by: angela at February 19, 2011 08:08 AM
Also, what's with you and union bashing?
Pure and simple - (a) Labor Laws, (b) unions are a vocal minority that steer debate and tax dollars away from spending preferred by the silent majority.
Union membership in the private sector dwindles toward ~7% of the workforce. At the same time, public sector unions have grown. One reason is that the taxpayer whose income becomes union compensation/benefits is not seen as a risk taker compared to a business owner. Politicians have proven they are incompetent when it comes to allocating taxpayer dollars in a responsible manner They are eager to dole out taxpayer dollars to the union in exchage for more union support at campaign time.
An unfortunate side effect of our political process is that special interests with the most money control the debate. (Special interests on both sides of the aisle.) This has an especially negative impact on public sector wage bargaining.
Public sector union leaders, ( a vocal minority), uses its money and manpower to back selected politicians. Once the elected officials are in office, the same officials bargain with the union over wages/benefits and stack agencies with union friendly appointees. Seems like a bit of a conflict of interest, no? The union is a vocal minority able to steer resources away from the projects the silent majority prefers, and toward the union. (a similar story holds for business and tax cuts.)
Unfortunately, it takes an extraordinary set of circumstances, like those produced by the Obama/Reid/Pelosi partnership, to motivate the silent majority to go to the polls.
Progressives are doing everything in their power to increase union membership, union dues and union campaign contributions. Unions offer a path to power for progressives, just as corporations offer a path to power for conservatives. Too much power in the hands either group is not in America's best interests.
For the time being, the aftertaste of Obama/Reid/Pelosi lingers. The pendulum continues to swing against the public sector unions and the unfair advantage they have at the bargaining table when their political cronies are in power.
Posted by: tj at February 19, 2011 08:18 AM
Posted by: Menzie Chinn at February 19, 2011 08:41 AM
tj Somehow I never thought of Tea Party acivists as the "silent majority." Maybe it's some kind of fond remembrance you have of the Nixon era. But most polls show that the Tea Party does not represent a majority view, and I would hardly call them silent. It was Tea Party activists that were so inciteful at those townhalls back in 2009. The base of the Tea Party is old, white, old, conservative, and old. They vote in big numbers in mid-terms, but their influence is much diminished in Presidential election years. And it's a demographic that cares next to nothing about investment projects (good luck trying to get a school bond issue through a community chock full of retirees!) because they all have one foot in the grave and the other on a banana peel. But as the old saying goes, society makes progress funeral-by-funeral, so eventually these folks will exit the political stage and we will be able to move on. In the meantime I guess we'll just have to listen to old Tea Party voters rant about government workers while telling Democrats to keep their government hands off their Medicare.
Conservatives seem to have forgotten an old term in political science that was quite popular in older writings. Political scientists of a couple of generations ago used to talk about "polyarchal" institutions as being central to the the long run stability of democratic societies (e.g., see Robert Dahl). Unions were often cited as excellent examples of polyarchal institutions. It's good to remember that point now that we live in an age of bowling alone. The point is that societies need all kinds of buffer institutions like churches and unions. Conservatives have no problem with the influence of conservative church groups influencing govt policies, but get all bent over the axle when it comes to unions. Apparently it's okay for the Koch Bros to use government funds to push GOP causes, but not okay for union members to push Democratic causes. And don't forget that it wasn't that long ago when unions tended to support Republicans.
Posted by: 2slugbaits at February 19, 2011 10:15 AM
2slugs I agree, the tea party is a vocal minority. The problem for the far left is that more than half of the political spectrum does not agree with their policies. Unions have aligned themselves with the far left. Or more accuratley, the far left is using unions for political gain. If push comes to shove, the far left will abandon unions if it serves their cause.
Posted by: tj at February 19, 2011 12:16 PM
Whether or not the Act itself marginally reduces the deficit is beside the point. The fact is it uses what little money we have available to pay for an entirely new entitlement that rests on top of existing entitlements that we cannot afford.
Instead, what we are doing is analogous to a person with three credit cards that they cannot pay off buying an expensive new car and justifying it based on the fact they they aren't increasing their debt.
Posted by: HB at February 20, 2011 05:15 AM
See Michael Levi for an analysis of why the Dems lost in 2010. He does it statistically, and the answer is healthcare. http://blogs.cfr.org/levi/2010/11/05/cap-and-trade-didnt-kill-the-dems/
Here's a nice fiscally conservative answer on how to reform healthcare.
Step 1: Eliminate the tax deduction for healthcare premiums. Within 30 days, our household would be on an entirely different plan. And the government would go a long way to closing the budget shortfall.
Step 2: There are only two ways to ration healthcare: prices or volumes. Private insurance, as a structural matter, can only do it by price. It can only pay for things which the premium payers are willing to buy. By its very nature, it is voluntary. Hence, it can only cover those things which the consumer will voluntarily buy.
Beyond that is the realm of public policy, the purpose of which is to determine collectively what healthcare benefits shall be provided to those not able to participate in voluntary markets for their needs.
For public healthcare, there will always, always be more demand than the ability to pay. So how do you ration? There are two ways. First, you can simply determine gross eligilibity, for example, with Medicare for everyone of retirement age. The problem with this approach is that you will tend to see uncontrolled growth of spending over time. That's where we have been recently.
Alternatively, you can ration using a top down decision-maker who determines the volumes to be purchased. There is an implied budget constraint here, with growth of spending limits or absolute dollars the metric which determines the overall spending levels for a given period of time, say a fiscal year. To make this system work, like it or not, you need a "Death Panel" to allocate spending within overall budget framework. And yes, Obamacare has this function--it's central to controlling costs. (It's one of the few provisions I actually like--because it deals with reality, not fantasy.)
And it's also clear that US medicine is over-regulated. This from The Economist. http://www.economist.com/node/17963427
"A disarmingly honest Mr Ishrak of GE explains that America’s risk-averse regulators (see chart 2) and its complex systems of financing health care are a problem, but he adds that “manufacturers are also to blame.” The sales and distribution systems at firms like his, set up to sell $100,000 scanners, are ill-suited to sell versions at a tenth of that price. Also, he confesses, makers “do not present comprehensive evidence of value”; rather, he thinks, they rely on “an emotional kind of sale”."
There are so many layers of regulation and risk aversion in the US healthcare system, that it looks to be materially suppressing price signals in the marketplace. Getting rid of the healthcare premium tax deduction would be a helpful first step to reviving price signals in the healthcare marketplace.
Posted by: Steven Kopits at February 20, 2011 08:27 AM
Steven Kopits I agree that we should get rid of the premium deduction. As you said, that was one of the things that was in the original Obama plan. Granted, the Obama plan only applied to "Cadillac plans," but at least it was a step in the right direction. Again, the GOP fought this provision and gave clueless voters yet another dose of the old free lunch argument. Obama's plan also proposed cutting Medicare Advantage. Here again the GOP demagogued the issue. Obama's plan also moved away from fee based services towards results based outcomes. Guess which side of the argument the GOP was on?
The central problem is that Tea Party voters, who are disproportionately old, are demanding that young voters provide them with unlimited healthcare benefits in which price is no object in the last 2 months of life. Tea Party voters are concerned that any new entitlement for the young, such as guaranteed coverage, will come at the expense of the elderly. That's why the Tea Party types argued vociferously for the right to keep $500B in useless medical procedures rather than see that $500B go towards improving healthcare for the young. Tea Party voters are all for market based solutions for the young, but they demand expanded Medicare coverage for themselves.
A contributing factor to rising healthcare costs is the way doctors are using the GOP to protect doctors' incomes. All those higher medical costs end up being somebody's income...and typically its the income of doctors and owners of test labs (who, by coincidence, are typically doctors).
Posted by: 2slugbaits at February 20, 2011 08:51 AM
Someone has to say it: So-called "health care" spending is now an equivalent of 25% of private GDP and growing at 7-8% (5-6% real), seemingly in perpetuity, whereas the private GDP since '00 has barely grown 3% and just 0.6% in real terms.
At the trend rates of private GDP and "health care" spending, the latter will make up nearly 40% of private GDP by '20 (and associated costs to individuals, households, gov't, and private employers) and nearly 60% by '20.
The growth of "health care" since the '80s has contributed a net ~1% to nominal GDP per year; that is coming to an end.
There is no mathematical possibility that "health care" spending can even continue to grow during the coming decade, let alone grow at 7-8%.
We will be lucky if we can avoid cutting spending more than 4%/yr. per capita for the next 10-20 years.
The overarching challenge is how successfully we quickly we adapt to contraction, not how good we are at engaging in shell games to keep the debt-money and gov't spending Ponzi schemes going.
Posted by: Nemesis at February 21, 2011 03:39 PM