The updated CBO numbers

Many of you are concerned about the new CBO forecast:

Congressional Budget Office estimates released Tuesday predict the health care overhaul will likely cost about $115 billion more in discretionary spending over ten years than the original cost projections.

The additional spending — if approved over the years by Congress — would bring the total estimated cost of the overhaul to over $1 trillion.

And, of course:

Republicans pounced on the news, which they called another sign that the Obama administration makes promises it cannot deliver.

Deep breath, people.  I’m serious.

Before I even get into the weeds, I’m inclined to say this.  No one ever said health care reform would be cheap.  And even if this were taken at face value, and it meant that reform was going to cost about $11.5 billion more per year on average than we thought, that would mean that overall health care spending would be less than half a percent more than we thought it would be.  I’m not losing sleep over that.

But it shouldn’t be taken at face value.  Paul Van de Water, a Senior Fellow at the Center on Budget and Policy Priorities, writes:

In March, when CBO estimated health reform’s effects on the deficit, it appropriately included all of the legislation’s impact on mandatory spending. (Mandatory spending, like Medicare and Medicaid, continues from year to year unless Congress passes new legislation to reduce it.)

CBO’s March estimate did not include the legislation’s impact on discretionary spending — the spending Congress provides each year in appropriation bills — because the legislation did not directly affect discretionary spending. Moreover, there’s no way CBO can estimate how the legislation might affect the future discretionary funding Congress will actually appropriate for any specific program or how that appropriation will affect total discretionary spending. (For an explanation of why CBO’s treatment of discretionary spending is necessary and appropriate, see this paper Jim Horney and I wrote on March 25.)

Instead, CBO in March provided a separate table showing the possible discretionary spending that could — contingent on future appropriations legislation — result from enactment of health reform. Yesterday’s letter from CBO simply updated those figures.

While the new figures are indeed larger than the March ones, the biggest single reason is that they include the cost of renewing the Indian Health Service (IHS), totaling $39 billion over ten years. (Many of the health reform law’s provisions continue existing discretionary programs rather than create new ones.) As CBO’s letter points out, that $39 billion is simply a projection of what the federal government is currently spending for the IHS; not a single dollar represents additional real spending.

Aside from $10 or $20 billion of administrative costs, the estimate is based on items that are not currently funded and that may not ever be funded. It’s up to the appropriations committees to make those decisions, and we don’t know what decisions they’ll make. Moreover, because discretionary spending is limited, new programs tend to compete with old programs (i.e., appropriators decide to spend $2 billion on a demonstration project in Medicare and take that money from somewhere else, which means net cost to the deficit is zero). So CBO doesn’t count potential discretionary costs because they may or may not be real, just like it doesn’t count savings that may or may not happen, because they can’t be projected with any sort of certainty.

Bottom line? As has so often the case with health-care reform, there’s plenty of evidence to argue that the bill will save very little money, and plenty of evidence to argue that the bill will save lots of money. Where you end up depends on how you weight different probabilities. But so far as discretionary costs go, it’s worth saying that CBO always separates them from mandatory costs and people don’t generally complain. It’s only when bills get controversial that these quirks of the budget process are given such a sinister cast.

Look, if you want to find a reason to be upset about the law, you shouldn’t have a problem doing so.  You can hate the mandate (even though if you want to prevent gaming the system you need one).  You can hate the fact that it doesn’t address the way we shield ordinary people from true costs, and therefore subtly encourage them to continue demanding expensive and ineffective things.  You can hate that it does nothing to dismantle the private for-profit insurance system.  You hate that it still leaves millions of Americans without insurance, does too little to contain costs, and doesn’t address quality much at all.

But it’s not a lie.  It’s not a trick.  They didn’t game the numbers or pull a fast one.  This bill is just what it said it was, including the cost.

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