Friday, March 19, 2010

Why we shouldn't put much credence in those CBO numbers

The Washington Post explains why the CBO numbers are even more unreliable than ever. There are just too many uncertainties built into examining how much the health care plan would cost. They are forced to make their predictions based on the promises that Congress will make certain cuts for doctor reimbursements in the future that no Congress has shown the gumption to cut in the past. Plus they have to accept the promise that a future Congress will willingly implement the promised tax on high-value insurance plans. The Democrats didn't have the stones to put in that tax starting now; they're just postponing the pain to a future Congress in 2018. Who believes in a tax that won't take effect for eight years?

As Megan McArdle writes
, "the CBO process has now been so thoroughly gamed that it's useless." Yup.

One of the more egregious gimmicks in what the Democrats are doing is attaching their student loan takeover program to the reconciliation sidecar. Then they are counting supposed savings from that program as offsets to the cost of the health care proposal. This really is carrying sneaky to whole new levels.
The reconciliation version of the bill chops out much of the student aid, making the measure fairly profitable on paper. After all, government will now have a monopoly in an industry already being subsidized by other parts of government.

Over the next decade, between reduced subsidies to private lenders and interest collected from students, the expected profit is $60 billion. Student aid would be increased by about $40 billion, leaving the U.S. Treasury $19.4 billion in the black thanks to this takeover. That profit gets counted toward the reconciliation bill's score from the Congressional Budget Office, and voila! more deficit reduction from the health care reform bill.

If only Democrats had thought of this trick back in the spring, they could have budgeted in the nationalization of other profitable industries. Throw the porn industry into the Department of Health and Human Services and nationalize Exxon Mobil, and your budget score looks even better.
And on top of things, they threw in an extra sweetener that goes to only one bank in the country.
The CBO revealed Thursday the bill would "establish a new program for lenders who were chartered before July 1, 2009, and are owned by a state under the control of a board including the governor and offered guaranteed loans prior to June 30, 2010."

That's an oddly specific description of a financial institution. That's because this program applies to exactly one lender: The Bank of North Dakota. The CBO explains, "Under the new program, these banks [sic] would be allowed to offer guaranteed student loans." In other words, all student lenders would be killed by the budget reconciliation bill, except for the biggest one in the state of Budget Committee Chairman Kent Conrad.
And don't forget the one wavering House member from North Dakota, Earl Pomeroy, who is supposedly undecided. The Republicans are already insinuating that this was put in to "help" him make up his mind. But in this day and age, people aren't getting away with sticking in some obscure passage that they can claim the benefits of without everyone else realizing that they were bought off.

Jeffrey Anderson has some more
about the chicanery that went into getting this report from the CBO.
First, it includes 2010 as the initial year. As most people are well aware, 2010 has now been underway for some time. Therefore, the CBO would normally count 2011 as the first year of its analysis, just as it counted 2010 as the first year when analyzing the initial House health bill in the middle of 2009. But under strict instructions from Democratic leaders, and over strong objections from Republicans, the CBO dutifully scored 2010 as the first year of the latest version of Obamacare. If the clock were started in 2011, the first full year that the bill could possibly be in effect, the CBO says that the bill’s ten-year costs would be $1.2 trillion.

But even that wouldn’t come close to reflecting the bill’s true costs. The CBO projects that over the next four years, less than two percent of the bill’s alleged “ten year” costs would hit: just $17 billion of the $940 billion in costs that the Democrats are claiming. In fact, the costs through President Obama’s entire presidency, should he be reelected, would be $336 billion. What would the president leave behind for his successor? According to the CBO, he would leave behind costs of $837 billion during his successor’s first term alone. If his successor were to serve a second term, he or she would inherit a cool $2.0 trillion in Obamacare costs — about six times its costs during Obama’s own tenure. This legislation is a ticking time-bomb.
And how do the Democrats plan to pay for all this new spending?
How would we pay for all of this? According to the CBO, by diverting $1.1 trillion away from already barely-solvent Medicare and spending it on Obamacare, and by increasing taxes on the American people by over $1 trillion. Among the Medicare cuts would be cuts of $25,000 in Medicare Advantage benefits per enrollee — up from $21,000 in the previous scoring. To be clear, those living in South Florida wouldn’t have to worry about this, as the newly politicized nature of health care would cause them to be exempted. These cuts would affect only less-fortunate seniors, namely those living in just about any other part of the country.
But the Democrats want to pretend that they're shoring up Medicare by making these necessary cuts. Except that they're not using the money to help Medicare's looming deficits - they're using the money to fund their new entitlement. Medicare is still going broke and they've taken away one of the possibilities of fixing it by using that money elsewhere. Just as they've taken away the supposed savings from their takeover of the student loan program that was originally proposed to go into helping more students.

Even pro-health reform Ruth Marcus
expresses a health dose of skepticism for the CBO's numbers.
Of the $138 billion saved in the first 10 years, $70 billion represents premiums collected for a new long-term-care program, money the government will have to pay in benefits later. An additional $20 billion in savings comes from changes to the federal student loan program.

And here is the accompanying tablespoon of salt: The CBO is required to assume that Congress will do what it promises. So, for example, Congress promises in the measure to cut several hundred billion dollars in Medicare spending. Sometimes such promises have come to pass. Other times, as in the current difficulty with scheduled cuts in Medicare reimbursements for doctors, they are put off because of a public -- or politically connected -- outcry.

One big reason for the CBO's long-term assessment of major cost savings involves the excise tax on high-cost insurance plans. This is the tax that, in the face of opposition from labor unions and others, has been diluted to almost nothing -- a measly $32 billion, compared with $149 billion in the original Senate bill -- during the first 10 years. Will the tax really be collected in 2018 -- long after many of those voting for it will have left office, long after the benefits it is helping to finance have kicked in?

In one important way, the revised proposal improves the tax: Beginning in 2020, it will be indexed at the regular rate of inflation, not the Senate-passed inflation rate plus 1 percentage point. But that change might make it even less likely to take full effect, because it will hit more people sooner, meaning that they'll start complaining sooner.

Likewise, the revised measure would change the way that government subsidies to help people purchase insurance will be calculated, beginning in 2019. These would end up growing more slowly over time. Ask yourself: If subsidies end up covering a smaller share of people's premiums, what do you think a future Congress will do?
Every estimate of the cost of a new entitlement program has always been way off. This one will be no more accurate. Because the gimmicks don't work in the real world. Of course, when the bill comes due, it will be too late.