James Pethokoukis

Politics and policy from inside Washington

What Ben Nelson didn’t tell Nebraskans

Dec 31, 2009 03:44 UTC

Suddenly down some 30 points to a hypothetical 2012 challenger, Ben “60th vote” Nelson — a guy who won his 2006 race with 64 percent — is taking to the airwaves to explain his decision to vote for ObamaCare.

But in a TV spot, Nelson failed to tell his fellow Nebraskans that while the Senate bill supposedly improves the U. S. fiscal picture, it employs some Enron-esque bookkeeping tricks to get there.

The Patient Protection and Affordable Care Act promises to cut the federal budget deficit by $132 billion over the next decade, according to the Congressional Budget Office. That’s not a huge amount given that healthcare spending drives the government’s long-term fiscal woes, but it’s something. Indeed, at first glance the tab for expanded health insurance coverage appears more than met through a mix of Medicare spending cuts and payroll tax increases.

Yet this minor bit of fiscal prudence is a mirage. The act would reduce Medicare spending on hospital stays by $245 billion from 2010-2019, while increasing tax revenue by $113 billion. So on paper, Medicare’s hospital insurance trust fund would be some $358 billion to the better, boosting its long-term solvency. But the government then takes that $358 billion and uses it to pay for increased, non-Medicare healthcare spending — leaving $358 billion worth of IOUs in the Medicare trust fund. If not for that $358 billion shift, the act would worsen the deficit by $226 billion over the next ten years.

It’s a clever trick that takes advantage of the CBO’s treatment of both the Medicare and Social Security trust funds as essentially off-balance sheet vehicles. Money owned to them is not treated by the CBO as the same as money owed to Treasury bondholders. The former is treated as a mere obligation, the latter a concrete liability. Yet both are future claims on taxpayer resources.

And that’s not the only bit of chicanery: 1) There’s a similar $50 billion double-counting trick with the Social Security trust fund. 2) CBO healthcare scoring assumes a huge reduction in government payments to doctors even though a separate bill moving through Congress would restore the $250 billion cut.3) The payroll tax hike isn’t indexed for inflation, generating unrealistically high revenue forecasts. 4) And as Andrew Biggs of the American Enteprise Institute notes, the cost-cutting Medicare advisory commission would merely limit spending growth to pretty much the current baseline forecast (GDP plus 1 percent) which translates into $62 trillion of additional deficits over the next 75 years.

(Then again, budget scoring overall is dodgy. John Williams of Shadow Government Statistics calculates that using Generally Accepted Accounting Principles as public corporations do, the total 2009 budget deficit would be roughly $8.8 trillion, not the $1.4 trillion reported on a cash basis.)

Nope, Ben Nelson didn’t tell deficit-fearing Nebraska voters any of that.

COMMENT

1. permit all health insurance companies to operate in the entire country. Allow them to refuse anyone they want. Have a pool of “high risk” patients who are subsidized by all the other insurance premiums.

2. Allow Insurance companies to operate and be sued in the state they are incorporated, to reduce medical judgments. Take government out of the process of regulating companies, but make very public any consumer complaints, for shoppers.

3 Reduce medicaid and medicare fraud by having incentives for individuals to report fraud.

4. Tax incentives for homeowners to allow sick or disabled folks to live in and get some care.

Posted by Keating Willcox | Report as abusive

Healthcare vote may wound some Dems, like Ben Nelson

Dec 29, 2009 15:53 UTC

Truly shocking numbers on  Sen. Ben “60th Vote” Nelson from Rasmussen:

The good news for Senator Ben Nelson is that he doesn’t have to face Nebraska voters until 2012.

If Governor Dave Heineman challenges Nelson for the Senate job, a new Rasmussen Reports telephone survey shows the Republican would get 61% of the vote while Nelson would get just 30%. Nelson was reelected to a second Senate term in 2006 with 64% of the vote.

Nelson’s health care vote is clearly dragging his numbers down. Just 17% of Nebraska voters approve of the deal their senator made on Medicaid in exchange for his vote in support of the plan. Overall, 64% oppose the health care legislation, including 53% who are Strongly Opposed. In Nebraska, opposition is even stronger than it is nationally.

Fifty-six percent (56%) of voters in the state believe that passage of the legislation will hurt the quality of care, and 62% say it will raise costs.

COMMENT

Dr. Bohn,
I red somewhere that some docs, particularly ob/gyn surgeons, are working for about 1/2 year just to cover malpractice insurance, but it looks like you have it even worse – it’s 2/3. Working just for coverage from January thtough August – it’s completely ridiculous. If there’s any place for public insurance option, it’s right there – in malpractice insurance. Maybe if Uncle Sam himself becomes the target of trial lawyers, he’ll be able to keep them back, and the costs of coverage more reasonable then they are now.

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Repealing healthcare reform

Dec 29, 2009 15:28 UTC

Assuming ObamaCare passes, the GOP is already making a pledge to repeal it ASAP part of their 2010 (and beyond) electoral strategy. But Igor Volsky over at the Wonk Room makes some good points indicating the political difficulty of doing so, putting side an Obama veto of any attempts:

1) The bill immediately prohibits insurers from rescinding coverage, imposing life-time or annual limits or denying coverage to children with pre-existing conditions.

2) Applicants who are unable to find insurance in the individual market, can purchase catastrophic coverage and young adults can stay on their parents’ policies until their 27th birthday.

3) Small businesses that provide health coverage will also be eligible for tax credits beginning in 2010.

4) The bill requires health insurers to spend 80 to 85 percent of all premium dollars on medical care and reduces the size of the coverage gap in Medicare Part D “by $500 in the first year.” The bill also guarantees “50 percent price discounts on brand-name drugs and biologics purchased by low and middle-income beneficiaries in the coverage gap.”

5) These benefits could also improve as the Senate bill moves into conference. Several House progressives have pledged to push the conference committee to move up the implementation date of the exchanges in the final bill and front load more benefits into the interim period of the final legislation.

The news regs on private health insurance are likely to be quite popular. More than likely, any GOP efforts will have to work within the general framework that is created, such as healthcare exchanges.

COMMENT

So what.

If necessary, rescind the entire monstrosity and pass another with the 1% that makes sense.

Or pass a Republican version with tort reform, portability, limits on dropped coverage, and interstate competition.

It’s simply ridiculous to say we are stuck with a poison pill of 2700 pages when 20 pages might make sense.

And btw, a good bit of the 4 points listed are just plain stupid. Just because some nutter liberal likes government give-aways doesn’t mean that rational people can’t spot redistribution on a stick.

Posted by proreason | Report as abusive

What’s $62 trillion in deficits anyway?

Dec 28, 2009 15:09 UTC

The great Andrew Biggs makes a great point about the Medicare advisory commission in the Senate healthcare bill, a cost-control measure that Peter Orszag calls one of the most potent in the bill:

The new board is empowered to impose cost reductions if Medicare cost growth exceeds the growth of Gross Domestic Product plus 1 percent. Congress must accept these reductions or come up with equivalent cuts of their own.

But here’s the problem: Medicare’s baseline level of growth is right around GDP plus 1 percent. In the past, the Medicare trustees made their “GDP plus 1” cost growth assumption explicit; currently, they use a more sophisticated model of healthcare cost growth that nevertheless mimics the effects of GDP plus 1.  (See pages 178–180 of the 2009 Trustees Report.) CBO’s projected rate of “excess cost growth” is slightly higher than the trustees’, but this plays out mostly in the longer term, by which time we’re long since broke.

In other words, the Medicare advisory commission—despite all the controversy over “rationing care”—isn’t tasked with much more than limiting Medicare cost growth to a rate baseline which some experts have calculated will generate over $62 trillion in deficits over 75 years. Even if Medicare cost growth were held to GDP plus 1 percent, total costs through the 2030s would cut by only around 5 percent.

COMMENT

how about getting your Republican buddies to push for this change? I would support it. Or are you just throwing stuff against the wall again…

Posted by Chi Democrat | Report as abusive

Surprise! Gaming CBO rules masks how healthcare reform may actually make deficit worse

Dec 23, 2009 21:23 UTC

[See update at bottom] A group of Republican senators, led by Jeff Sessions and Judd Gregg, are accusing the Democrats of double-counting Medicare tax hikes and spending cuts as both extending the solvency of the program and paying for expanded healthcare coverage. So they asked the CBO for its opinion. Here is the CBO’s response:

The key point is that the savings to the HI trust fund under the PPACA would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs. Trust fund accounting shows the magnitude of the savings within the trust fund, and those savings indeed improve the solvency of that fund; however, that accounting ignores the burden that would be faced by the rest of the government later in redeeming the bonds held by the trust fund. Unified budget accounting shows that the majority of the HI trust fund savings would be used to pay for other spending under the PPACA and would not enhance the ability of the government to redeem the bonds credited to the trust fund to pay for future Medicare benefits. To describe the full amount of HI trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position. [Bold is mine-JP]

Me: Basically, the government is taking money out of Medicare’s Hospital Insurance trust fund, replacing it with IOUs and then spending it. But the CBO doesn’t score such intra-governmental transfers as the same sort of debt as when a Treasury bond is issued. But it is an obligation just the same. If not for this accounting quirk, the Senate health bill seemingly would be scored as increasing the budget deficit by $170 billion or so over the next decade (itself a funny number since taxes come first, then benefits) instead of cutting the deficit by $130 billion.  This is a similar shell game played by the government when it uses Social Security surpluses to mask the true depth of the budget deficit. I don’t see how supposed Dem budget hawks like Mark Warner and Kent Conrad and Evan Bayh can go along with this. This is just as bad as the shunting $250 billion in doctor payments into a different bill to hold down the official cost of ObamaCare.

The Centers Medicaid & Medicaid Services made a similar statement a couple of weeks back on Medicare funding:

The combination of lower Part A costs and higher tax revenues results in a lower Federal deficit based on budget accounting rules. However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the Part A trust fund. In practice, the improved Part A financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.

UPDATE: Douglas Holtz-Eakin, a former CBO director, adds his two cents:

I read the CBO and they made the point exactly right: money can only be spent once.  The D’s are (again) trying to use dollars twice.  The first time (Bennet) amendment said they would not reduce Medicare benefits, but used medicare savings to fund subsidies.  Now they are saying they will put the money in the trust fund (and spend it on medicare) but use it to fund subsidies.  It is fundamentally dishonest.

COMMENT

For the love of Pete, lets stop talking about it and fire all of Congress and the President, NOW, not later.

Posted by Ralph Kelley | Report as abusive

Why surtaxes are foolish

Dec 23, 2009 17:33 UTC

A surtax to pay for healthcare? Not good. Former Bush White House economist Alan Viard explains:

First, it would significantly increase marginal tax rates for the affected households, giving them greater incentives to reduce their taxable income through various avoidance strategies. Even with moderate responsiveness to incentives, the revenue generated by the surtax would be significantly smaller than the burden that it would impose on affected taxpayers.

Second, the surtax would significantly increase the marginal tax rate on saving and investment by the affected households, whether done through corporate or noncorporate firms. The impact would be magnified because these households, despite their small numbers, account for a large portion of national saving. The resulting drag on capital accumulation would lower real wages for workers throughout the economy.

Third, the proposed surtax reflects an unsustainable approach to tax and fiscal policy. As commentators across the political spectrum have recognized, the existing fiscal imbalance cannot be addressed without imposing sacrifices on a broad segment of the population. Any new spending programs, such as those in H.R. 3962, will impose additional burdens. By linking these programs to a tax imposed on only 0.3 percent of the population, the bill obscures that fiscal reality. If the programs in H.R. 3962 are worthwhile, they are worth paying for in an open and broad-based manner.

The bear case on healthcare reform

Dec 22, 2009 15:09 UTC

So now what? My pal Rich Lowry takes a crack at the bear case for healthcare reform. His main points:

1) Public opinion.  The bill was already under water in every major public-opinion poll, and opposed by a margin of almost 2 to 1 in the latest CNN poll. The latest NBC News/Wall Street Journal poll put its support at freezing, 32 percent. A few ticks downward and the bill will be in the 20s. … The Democrats have shown no inclination to let public opinion hold them back, but the stiff headwind makes everything a little harder and reduces an already-small margin for error. One subset of public opinion will be particularly important: Nebraska. If Ben Nelson is perceived to have made a career-defining choice that will end his designation as a conservative Democrat and a pro-lifer, and if he takes an immediate dive in the polls, it will cast a pall over other Blue Dogs inclined to play ball.

2) Abortion. After her initial 220–215 victory, Pelosi can afford to lose only two net votes. Bart Stupak has declared the Nelson language unacceptable and vows to oppose the final bill if it doesn’t include the restrictions contained in his amendment. As John McCormack points out, earlier in the year Stupak was part of a bloc of Democrats who wrote a letter to Pelosi saying they’d stand against “any health-care-reform proposal unless it explicitly excludes abortion from the scope of any government-defined or -subsidized health-insurance plan.” Eleven of those signatories voted for the House bill.

3) Money. The Senate relies on a so-called Cadillac tax on pricey insurance plans, the House on a surtax on the wealthy. The Senate long ago declared the surtax anathema, and the House is just as dismissive of the Cadillac tax. The unions hate the Cadillac tax, since they enjoy such plans themselves, the fruit of collective bargaining. If the House gives in, it will create even more unrest on the Left. If the Senate gives in, it could upset the fragile deal for 60. If this disagreement over financing doesn’t represent as dire a threat to the future of the bill as the other factors we are cataloguing, it’s still a stumbling block.

4) Blue Dogs. When Obamacare first passed the House, 28 Blue Dog Democrats, more than half of their 52-member coalition, were on board. This is a pool that surely includes some very nervous votes. As Michael Barone points out, nearly 70 percent of the Blue Dogs represent districts that voted for John McCain. A vote for this bill must look even more like a potentially career-ending decision now than it did the first time around.

Keep an eye especially on the Pennsylvanians. Rep. Patrick Murphy already has four GOP opponents in his suburban Philadelphia district. After supporting round one of Obamacare, the auto bailouts, TARP, and the stimulus, Murphy may be looking for a way back toward the center. Reps. Kathy Dahlkemper and Christopher Carney, both elected in the 2006 anti-Bush sweep, represent blue-collar districts in the Keystone State in which Obama failed to reach 50 percent last year. You can bet that trio is watching the polls. Other Blue Dogs are simply getting out. In the past month, Reps. Bart Gordon (D., Tenn.), Dennis Moore (D., Kan.), and John Tanner (D., Tenn.) have all announced their retirements.

5) Liberals. No fewer than 60 liberals in the House imprudently made a pledge to oppose a bill without a public option. Almost all of them can be expected to eat it. But what if one or two don’t? Public-option scold Rep. Anthony Weiner (D., N.Y.) is continuing to pressure Obama to move further left. “What we’re saying is now’s your moment, big guy, you’re the Mariano Rivera of this situation,” he said to MSNBC last week. “You’re going to come in at the end, and there’s still a chance to do it.” That’s not going to happen, but perhaps a few of Weiner’s colleagues are ideologically besotted enough to lash out at the president’s “betrayal” when he doesn’t “come in” the way they hope he will.

COMMENT

Shadow-boxing is only entertaining in situation comedy. The mainstream Democratic Party, like all its Republican brethren, has shown how uniformly serious it is about selling America out to zombie corporations on every single issue there is – banking, insurance, telecommunications, consumer and civil rights included.

So really, this laughable “detailed” analysis isn’t all that amusing right now. Neither of America’s major political parties is worth saving, or even listening to, any more.

There is only one thing to do with zombies. One.

Posted by HBC | Report as abusive

The political blowback from healthcare reform

Dec 18, 2009 19:20 UTC

Kim Strassel of the WSJ states her case:

1) Consider North Dakota. A recent Zogby poll showed 28% (you read that right) of state voters support “reform.” A full 40% said they’d be less likely to vote for Democratic Sen. Byron Dorgan next year if he supports a bill. In a theoretical matchup with Republican Gov. John Hoeven (who has yet to announce), Mr. Hoeven wins 55% to 36%. Mr. Dorgan has been in the Senate 17 years; he won his last election with 68% of the vote.

2) In Arkansas, 32% support this health-care legislation. Sen. Blanche Lincoln, also running next year, trails challengers by more than 50 points among the 56% of voters who strongly disapprove of the health plan.

3) Senate Majority Leader Harry Reid, the public face of health reform, can barely break 38% approval in Nevada.

4) In Colorado, where 55% of voters oppose a health bill, appointed Democratic Sen. Michael Bennet told CNN he’d vote for a bill even if it “cost him his job.”

5) In deep-blue Delaware, 46% oppose the health plan. Democrats pounded Delaware GOP Rep. Mike Castle, running for Senate, for voting against the House bill. That vote has in fact kept Mr. Castle leading his expected opponent, Beau Biden, the vice president’s son.

6)  In the past weeks, four well known House Democrats announced they will not run for re-election. All are longtime incumbents; one, Tennessee’s respected John Tanner, co-founded the Blue Dog coalition. These folks have seen the political handwriting on the wall.

So why the stubborn insistence on passing health reform? Think big. The liberal wing of the party—the Barney Franks, the David Obeys—are focused beyond November 2010, to the long-term political prize. They want a health-care program that inevitably leads to a value-added tax and a permanent welfare state. Big government then becomes fact, and another Ronald Reagan becomes impossible. See Continental Europe.

Me: Yup. Ds, who also no doubt think healthcare reform is good and moral policy, see a long-term political advantage.  Indeed, they often talk about the structure of reform as more important than details. Those can come later. But change the structure of 1/6th (and climbing) of the nation’s economy and you change its politics, too.

COMMENT

The truth is that Congress wants to escape any suggestion of having to pay for healthcare benefits, and would prefer that corporations pay the bill and “hide” the cost from consumers.

A more honest health policy was presented in detail by Ezekiel Emanuel, which would have paid for universal healthcare with a dedicated value-added tax. It would have been progressive in that the cost would have burdened citizens in proportion to their consumption which is directly related to their disposable income. And, since everyone would pay for healthcare this way, those who now receive free attention in hospital emergency rooms would also contribute.

The VAT would have put the focus on the direct cost of healthcare in the percentage level, so citizens would be aware that demands for increased services would have an impact on their ability to pay for other things. Healthcare expenditures are now around 17% of GDP and will represent fully one-fifth of GDP by 2018.

Replacing the direct corporate burden of healthcare premiums with a VAT would have removed a major cost disincentive to employment, and would also have made imports share the burden equally with domestically produced goods and services. And, because the VAT is a border-adjustable tax, so used for healthcare insurance, it would have been subtracted from exports making our products more competitive abroad as well as at home.

Too bad this plan did not receive more attention from the press as well as the Congress.

Posted by SteveA | Report as abusive

What healthcare reform 2.0 might look like

Dec 16, 2009 13:57 UTC

Let’s assume, for the moment, that the latest version of the shape-shifting U.S. healthcare reform legislation may not worsen U.S. finances in the short term. But do the deficit math, and it doesn’t reduce long-term spending enough. The curve won’t get bent.

The proposed legislation would reduce the U.S. budget shortfall by a cumulative $100 billion or so over the next decade compared with the current baseline forecast, according to the Congressional Budget Office (CBO).  And in the decade beyond that, the changes would reduce federal budget deficits by about one-quarter percent of GDP against the no-reform case.

For the long term, though, that’s not nearly enough. Budget deficits are likely to average somewhere near $1 trillion annually over the next decade, with long-term structural deficits of at least 7 percent of GDP (maybe much more), which is currently $14.3 trillion.

By comparison, the post-World War Two average deficit in the United States is 2 percent of GDP. Healthcare costs are currently projected to account for roughly half of total government spending, or nearly a quarter of GDP, over the coming decades.

To narrow the deficit, healthcare spending cuts would therefore need to be substantial. Unfortunately, the reforms currently envisaged don’t contemplate that kind of surgery. For instance, the money saved from big cuts in Medicare, the U.S. government’s post-retirement healthcare program, is earmarked for expanding coverage rather than reducing overall costs. Yes, the Senate bill is filled with all manner of pilot programs means to change the healthcare payment system and the incentives it creates for overuse of pricey premium. But whether these programs will eventually blossom is pure guesswork.

Here’s what isn’t guesswork: Pressures will eventually mount, whether from creditors of the United States or, if successive governments choose to print money to fund their deficits, from citizens weary of inflation. It’s hard to see how hefty healthcare cuts could then be avoided.

But maybe such a crisis will finally prompt some smart policy that moves America away from an unaffordable,  central planning approach. One possible result might be a healthcare system with a minimalist public safety net and lots of add-ons paid for by users. Or perhaps a more market-driven fully private insurance system with government subsidies for the poor. The CBO has actually scored approaches like these and found that they could help close the long-term budget shortfall, reducing total long-term government healthcare spending by half from current projected levels.

Unfortunately, today’s reforms are just kicking the cost problem down the road. It will be the next round of healthcare reform that has to explore more radical options.

COMMENT

By the time this healthcare legislation passes there won’t be anything left in it worth passing.

Posted by Laz | Report as abusive

Winging it on healthcare reform

Dec 15, 2009 19:19 UTC

“Armchair Economist” Steven Landsburg had a chance to talk with Obama healthcare guru David Cutler of Harvard. His conclusion:

In Professor Cutler’s view, there are three ways to fix things: First, European style rationing, which almost no economist favors (largely because there’s no way to tell whether the government is getting the quantities right). The second option, which Professor Cutler prefers, is revising the payment system to create better incentives. I agree that this would be a very good option if you could figure out how to accomplish it, and I agree that there might be a way to make it work, but I’m not convinced that Professor Cutler (or anyone else) has yet figured out how to do it. The third option is the one I tend to favor—more patient autonomy. I’ve indicated some ways this might work in an earlier post. Professor Cutler is skeptical of this third option on the grounds that—well, he didn’t put it quite this way, but essentially his argument was that a lot of patients are stupid. That’s probably true, and it means that this option is imperfect also.

The great Arnold Kling tosses in his two cents:

My disagreement with Cutler is more than mere gut instinct. Cutler and I might agree that there is overuse of medical procedures with high costs and low benefits. We might agree that incentives affect this. However, Cutler is confident that central planning represents the solution, not the problem. He believes that remote bureaucrats can measure health care quality well enough and implement compensation schemes that are fine-grained enough to achieve significant improvement.

I suspect that he has no administrative experience either in business or government. Suppose that you told him that middle managers in America make many mistakes and often are compensated for doing the wrong things. As an academic, he would think in terms of having experts in Washington design better compensation schemes for middle managers. It would never occur to him that what works in theory fails in practice, because it incorrectly assumes that central planners have superior knowledge and face zero political constraints, and that in a dynamic environment the planners will stay one step ahead of those with an incentive to game the system.

COMMENT

Big point = we all should have the right to ‘life’ as a basic premise. That was the one of the top items in the constitution. That one can die in America of ‘terminal poverty’ is Dickensonian. That we assign the current distribution of services, ‘rationing’. of another kind to PROFIT making insurance companies harkens back to the slave trade in the American past.

Just dump the sick ones overboard, keep on sailing and raking in those profits. The

Health Insurance system is immoral, and has utterly failed. Greed is not a good regulator to pair with matters of life and death.

Posted by frank | Report as abusive
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