The Other CBO Health Care Report

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Shortly after it posted its analysis of the Senate health care bill, the CBO put up a letter to Congressman Paul Ryan (R-WI) analyzing the House's other health care bill:  the $200+ billion dollar "fix" (aka repeal) of the Sustainable Growth Rate.

For those of you who haven't been following along at home, the Sustainable Growth Rate was a cost-cutting measure enacted as part of the Balanced Budget Act of 1997.  Not to bore you with unnecessary details, it tied the growth in physician reimbursement payments to GDP growth.  This worked for a few years, because we had unusually low cost inflation, and unusually high GDP growth.  Then those trends reversed, and physicians screamed bloody murder.  Starting early this decade, Congress has annually enacted a temporary fix that either holds physician reimbursements steady, or raises them slightly, rather than cutting them as the law demands.  Over the years, compound growth means that getting back to the SGR mandated trendline would require massive cuts in reimbursement rates:  21% this year, and according to the CBO, approximately 2% every year thereafter.

Permanent fixes were originally part of the House bill.  The problem is, those fixes are, as you can imagine, very, very expensive.  They made the bill cost more than $900 billion, and also, not be so deficit neutral.  So they took it out and enacted it separately, without any financing measures. 

Paul Ryan asked the CBO the natural question:  "So what would these bills look like if they were enacted together?"  The answer, according to the CBO, is that together they'd increase the deficit by $89 billion over ten years.  And those increases would be back loaded:  by 2019, they'd be pushing the deficit upward by $23 billion a year.  The House health care bill makes the physician reimbursement fix somewhat cheaper. But the physician reimbursement bill makes the house health care bill cost slightly more--which is to say, if it were already law, the estimate of deficit reduction would be about $3 billion lower over the next ten years.

Defenders of the decision to split the bills argue that there's no particular reason that the Medicare physician fix should be tied to the health care bill.  I see what they're saying, but I think that's wrong, for a few reasons. 

- The provisions of the bills interact; passing them in parallel skews the cost estimates

- Passing the physician reimbursement is the price of AMA support for the bill, which is why they were originally bundled together.  The bills have to be passed in parallel--if they don't do the one, they probably can't pass the other.  That argues for making them into one bill.

- Failing to pass the cuts would devastate Medicare's GP provider network as physicians pulled out, making it hard to do the cost cuts in other areas.

- Splitting them leaves the physician fix with no financing mechanism.

It would be one thing if they'd found some alternative financing mechanism to pay for the physician fix.  But as I see it, they're passing a bill that increases the deficit by $200 billion in order to pass another bill that hopefully reduces it, but by substantially less than $200 billion.  That means that passage of this bill is going to increase the deficit.

I suppose you could argue that there's no chance that we're ever going to reduce those reimbursements, so passing the new healthcare bill doesn't actually increase the deficit from what it otherwise would be.  Only then you have to explain why we should believe that similarly structured payment cuts will work with all the other providers.  Because if Congress cannot, in fact, stick to its guns and allow mandated cost cuts to stand, then the health care bill isn't deficit neutral, is it?    

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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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