Opinion Column

Back To The Future: CBO Budget Predictions and Health Reform

This column is a collaboration between KHN and The New Republic.

Here we are again, arguing about whether health care reform will make the government’s balance sheet better or worse. The occasion for this latest round of debate is a new report by the Congressional Budget Office–one that predicts what the entire federal budget will look like several decades into the future. Critics of health care reform say the report backs up what they’ve been saying all along–that, because of reform, tomorrow’s budget deficits will be even worse than they are today. But CBO’s conclusion was a lot more complicated and at least a little more encouraging.
 
The report actually contains two different projections. The first and more optimistic is the “current law” scenario. In it, the CBO assumes that laws now on the books will remain on the books and that, over time, these laws will take effect as planned.

As far as health care is concerned, that means the government implements the Patient Protection and Affordable Care Act. It spends a lot of new money on Medicaid, drug assistance for seniors and subsidies for less affluent people buying private insurance. But it also saves a lot of money (by, for example, paying less money to hospitals that see Medicare patients) and raises some new taxes (most notably, through a tax on expensive private health insurance plans).
 
Add it all up, as the CBO did, and the budget deficit actually gets a little smaller. The emphasis is on “little,” since the net reduction is actually pretty small. Instead of running really really really big deficits, the government ends up running really really big deficits. Still, it’s an improvement–and maybe even a bigger improvement than the CBO predicts.

When calculating the current law scenario, CBO decided that reform would generate no new savings after 2030. In fact, many experts expect that reform’s greatest potential to generate savings lie in the medium- to long-term, as systems for reducing wasteful care become more adept. More important, health care reform includes myriad changes to the medical delivery system–everything from creating an electronic medical record system to scrutinizing new drugs and devices for effectiveness. CBO does not anticipate these changes saving much money. But if they do–as respected experts, like Harvard economist David Cutler, claim they will–then the savings could actually be substantially larger than CBO has allowed.

Of course, none of these means anything to the critics, who could care less what it looks like on paper. They insist the real problem with health care reform is that it will never be fully implemented. As this argument goes, policy-makers will chicken out when it comes time to impose cuts that affect powerful industries or enact taxes that might affect some constituents.

The CBO sketches out a possibility along those lines with its “alternative” scenario–a world in which the government refuses to impose various policies that might be politically unpalatable. In this scenario, health care reform doesn’t reduce the deficit. It causes the deficit to rise, although, again, not by that much.
Could this, more dour prediction prove correct? Absolutely. All of these projections–the good ones and the bad ones–are possible. But it’s wrong to assume the more pessimistic scenario is more likely.

During the 1990s, policy-makers passed–and then implemented–a set of tax and spending changes that eventually balanced the budget and actually led to budget surpluses. Among these were cuts to Medicare actually more severe (as a percentage of total Medicare spending) than the ones health care reform anticipates.

The next decade’s policy-makers might not be as responsible as the last decade’s. But if not–if they want to abandon the commitments of the new health reform law–it won’t be easy. If, for example, a new president and Congress decide in 2017 they don’t really want to impose the new tax on health benefits, they can rescind it. But then they’ll have to come up with something to replace the anticipated revenue–or willingly run up even higher deficits. And, given the political consequences of either move, they might very well decide to stick with the tax after all.

If that all sounds fanciful, consider what is happening right now on a related issue: Planned reductions to physician payments in Medicare. The cuts are the product of a poorly designed payment formula from the 1990s. But calls to rescind the formula have gone nowhere this year, because doing so would mean running higher long-term deficits and there’s no political appetite for that. Faced with this dilemma, Congress has instead resorted to passing a temporary stay, good for just a few months and paid for by money already set aside for other purposes. In this political environment, getting a “permanent fix” of the formula seems highly unlikely until somebody figures out how to pay for it.

True, political environments change. Two, five, or 10 years from now, politicians might decide to be careless with taxpayer dollars–and taxpayers might let them get away with it. But that’s always true. Today’s lawmakers can’t force tomorrow’s to be fiscally responsible. All they can do is pass fiscally responsible laws and hope future generations carry them out. With health care reform, they’ve done just that.