The headline of the Congressional Budget Office’s (CBO) damning assessment of the fiscal damage done by H.R. 2 — the so-called Medicare doc fix negotiated secretly by House Speaker John Boehner and Minority Leader Nancy Pelosi — is that the deal will add $141 billion to the deficit over the next ten years.
Even this appalling outcome is sugarcoated. After unpacking the gimmicks underlying the estimate, the actual result is much worse.
First, the worst gimmick: The bill increases spending on the Children’s Health Insurance Program (CHIP) by almost $40 billion. Yet, the CBO only includes less than $6 billion in its estimate of the bill’s costs. How did over $34 billion of CHIP spending simply vanish into thin air? Easily! Much of it was already in the baseline.
Welcome to the weird world of federal budgeting, where the so-called baseline is the source of much mischief. Recall the entire reason Congress had to patch Medicare payments to doctors at least once a year for over a decade is because the budget baseline was determined by an unrealistic formula called the Sustainable Growth Rate (SGR).
Because that formula would have led to pay cuts that would have made it uneconomical for physicians to see Medicare patients, Congress had to increase physicians’ fees beyond the baseline. Most importantly, until now, those pay increases have been paid for by spending offsets.
Physicians never had their Medicare pay cut to the level dictated by the baseline. There was simply no crisis that had to be averted by last week’s budget busting Medicare doc fix.
- Current law provides no new budget authority for CHIP after 2015.
- Following the rules for developing baseline projections of programs with such expiring funding authority, CBO’s projections reflect the assumption that CHIP will continue to be funded so as to operate as it will under the law in effect immediately before the date after which no new budget authority is provided.
The baseline derives entirely from an assumption that CHIP will continue, even though there is no legal basis for that assumption. For the Medicare doc fix, on the other hand, which is continuously re-authorized, there is no such assumption.
There is no economic logic behind the different treatment of the two programs in the baseline. However, it allowed the House of Representatives to get CHIP at a fire-sale price and disguise the true cost of the Medicare doc fix.
I arrive at a net cost of $214 billion, not $141 billion, by adding the actual amount of spending described by the CBO, without the CHIP budget gimmick. That makes $248 billion. Then, I subtracted the $34 billion revenue from higher Medicare premiums charged to high-income households.
The CBO estimates costs will be further reduced by a $38 billion cut to hospitals and post-acute care facilities. I discount that figure to zero, which may be too pessimistic. Nevertheless, the one thing we know about the government-medical complex is the coalition will always come together at any opportunity to increase the amount of money it taxes people, even if it initially appears some members of the coalition will have to pay in to the pot themselves. Once the deed is done, they cry poverty and manage to claw their money back.
The fiscal horror of the Medicare doc fix passed by the House last week is one reason to reject it. A patch of no more than two years, which would mirror the CHIP extension, would be more than adequate to give Congress time to consider more fundamental Medicare reform.