First Thoughts on the CBO Score

By Megan McArdle

As fate would have it, on the day that the CBO report is released, I am in standby hell, and running low on laptop juice.  So my thoughts on the CBO score, and the revised reconciliation bill, are necessarily somewhat preliminary.  But here is what I've noticed so far:


1)  Thanks to reconciliation instructions, they needed to improve the budget impact by at least $1 billion in the sidecar.  They improved it by exactly $1 billion.  Which goes back to what I've now said several times: the CBO process has now been so thoroughly gamed that it's useless.

2)  The proposed changes increase spending dramatically, most heavily concentrated in the out-years.  The gross cost of the bill has risen from $875 billion to $940 billion over ten years--but almost $40 billion of that comes in 2019.  The net cost has increased even more dramatically, from $624 billion to $794 billion.  That's because the excise tax has been so badly weakened.  This is of dual concern: it's a financing risk, but it also means that the one provision which had a genuine shot at "bending the cost curve" in the broader health care market has at this point, basically been gutted.  Moreover, it's hard not to believe that the reason it has been moved to 2018 is that no one really thinks it's ever going to take effect. It's one thing to have a period of adjustment.  But a tax that takes effect in eight years is a tax so unpopular that it has little realistic chance of being allowed to stand.

3)  As I expected, the size of the magic asterisk--the modern equivalent of David Stockman's infamous "savings to be named later" in the Reagan budgets--has had to be beefed up to offset the new spending.

4)  Medicare Advantage is being effectively outlawed--in some areas, the reimbursements will actually be below those of the fee-for-service programs.

5)  A disturbingly high percentage of the revenues still come from insurance premiums for other programs.  About $53 billion of the net deficit reduction is from Social Security taxes collected on the wages people will now be getting in lieu of health care benefits.  But since those contributions raise the amount Social Security will eventually have to pay out, the Republicans convincingly argue that this is not true "deficit reduction"; it's just deficit shifting.  Ditto the premiums for the new long-term care insurance.

6)  Ultimately, this rests on the question: are we really going to cut Medicare?  If we're not, this gargantuan new entitlement is going to end up costing us about $200 billion a year next decade, which even in government terms is an awful lot of money.  There are offsetting taxes, but they're either trivial or likely to be unpopular--look forward to a 4% rent increase when your landlord has to stump over the same amount for the new tax on rents.  Then look forward to repeal of same.

I think this is a fiscal disaster waiting to happen.  But no one on the other side cares, so I'm not sure how much point there is in saying that any more.

This article available online at:

http://www.theatlantic.com/business/archive/2010/03/first-thoughts-on-the-cbo-score/37720/