Baucuscare: Score!

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So, the CBO report is out, and my estimate of the contents is totally wrong.   WonkRoom has a pretty good summary:



Old CBO Score Of Baucus Bill New CBO Score Of Baucus Bill
Costs Reduce deficits: $49B/10yrs
Net Cost: $500B/10yrs
Gross cost: $774B/10yrs
Spends on subsidies: $463B/10yrs
Reduce deficits: $81B/10yrs
Net Cost: $518B/10yrs
Gross cost: $829B/10yrs
Spends on subsidies: $461B/10yrs
Insured Uninsured reduced by: 29M
Uninsured in 2019: 25M
In Exchanges: 25M
In Medicaid: 11M
Uninsured reduced by: 29M
Uninsured in 2019: 25M
In Exchanges: 25M
In Medicaid: 14M
Revenue Tax high cost plans: $215B/10yrs
Mandate penalty: $20B/10yrs
Free rider penalty: $27B/10yrs
Indirect offsets: $12B/10yrs
Tax high cost plans: $210B/10yrs
Mandate penalty: $4B/10yrs
Free rider penalty: $23B/10yrs
Indirect offsets: $83B/10yrs
Medicare
and
Medicaid
Total savings: 409B/10yrs
Payment updates: $182B/10yrs
Medicare Advantage: $123B/10yrs
DISH Payments: $48B/10yrs
Medicare Commission: $23B/10yrs
Total savings: 404B/10yrs
Payment updates: $162B/10yrs
Medicare Advantage: $117B/10yrs
DISH Payments: $45B/10yrs
Medicare Commission: $22B/10yrs

I find the new score deeply puzzling.  You've weakened the individual mandate, yet you're still covering exactly the same number of uninsured people.  You can explain that by saying the subsidies have gotten more generous, but then why is it decreasing the deficit by even more?  Here's the CBO's summary of what they did:

 

On September 16, 2009, CBO transmitted a preliminary analysis of specifications for the Chairman's mark as provided by staff of the Finance Committee. Those earlier estimates differ from the estimates provided here for two primary reasons: 
 
First, the proposal has been changed in a number of significant ways. For example, the subsidies that would be provided through the insurance exchanges were made larger, the penalties for not having insurance were reduced, and more people would be exempt from those penalties. Furthermore, the provisions of the excise tax on high-premium insurance
plans were changed in ways that would reduce the amount of revenues collected. In addition, states would now be required to maintain current coverage levels for children under Medicaid and CHIP through 2019.  Although CBO and JCT were able to provide estimates for many amendments, the agencies are not in a position to assess the impact of individual policy changes now that they have been combined in the amended mark. 
 
Second, CBO and JCT have made some technical refinements in their estimating procedures, including a revised assessment of the impact of the proposed changes on premiums for employer-sponsored health insurance and the resulting effects on tax revenues. 

So most of the major components of the program are scheduled to either cost more, or raise less revenue . . . but overall, it's generating a bigger surplus.  It's the healthcare economist's version of "We're losing money on every unit, but we'll make it up in volume!"

Going by the fairly sketchy description, virtually all of the extra benefit appears to come from estimating that employers will see their health care costs fall, mostly because they put those workers into federally subsidized programs, pass the resulting savings along to their workers in the form of higher wages and salaries, and that the Treasury will thereby gain, at a rough guess, about $12-15 billion a year in tax revenues. 

This is somewhat confusing to me.  The CBO seems to be assuming it will get just about 20% of the amount spent on subsidies back in the form of tax revenues.  But the effective income tax rate on the quintiles covered by the subsidies, according to the CBO, is less than 5%.  Perhaps the savings comes from the payroll tax, but even including the payroll tax, it's less than 15%.  And the tax rates are directly proportional to the size of the income, while the subsidies are inversely proportional.  I'm sure I'm missing something that would make the math work, but I can't figure out what.

But there you are:  Baucus got his favorable score, which means this has a good chance of passing--at least, unless the unions get the House to kill the excise tax, or the various medical lobbies get their payment cuts reversed.  Developing . . .

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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