Analyzing the Health Care Bills

The traditional scoring rules of the Congressional Budget Office (CBO), in the best of circumstances, generally provide only a partial picture of the full economic and budgetary consequences of major health policy legislation. This year's set of Democratic health "reform" bills offers a particularly massive and complex concoction of long-term spending commitments, interwoven cross-subsidies, price distortions, and regulatory unknowns of the future. Scoring the unscorable presents a daunting challenge for any forecaster.

Nevertheless, CBO pretends to go where taxpayers, insurance premium payers, and future Treasury bond holders fear to tread. As long as its budget analysts are going to present imperfect and limited numbers as if they actually tell us something meaningful, CBO at least should examine some broader issues and apply the same (or better) levels of scrutiny to them. A short list would include:

  1. The fully loaded, as implemented, 10-year costs of proposed health reform legislation (brought forward to 2009 dollar equivalents).
  2. The economic effects on future GDP growth, employment, and productivity from the disincentives of steadily climbing marginal tax rates as some, but not all, Americans maneuver through the income-based ladder of tax subsidies and caps for out-of-pocket premiums and direct health expenses within the limited insurance offerings of the national health insurance exchanges.
  3. The labor market distortions triggered by predictably unsuccessful efforts to erect and maintain a firewall to keep workers insured by employer-sponsored coverage from accessing exchange-based subsidies, while others at the same income level but purchasing insurance as individuals can do so. An analysis of how otherwise similarly situated individuals would fare by purchasing within the subsidized exchanges versus outside of them--in terms of all-in premiums (employer plus employer share) and out-of-pocket expenses, as a percentage of income, would be particularly illuminating.
  4. An updated forecast of the relative share of health spending that would be distributed--post reform--by "publicly" financed sources (Medicare, Medicaid, tax expenditures, other government health programs) versus privately funded ones (private insurance plus out of pocket payment)
  5. A longer-range (10 to 20 years ahead) projection of the change in levels of subsidies, tax obligations, and health spending burdens for various income cohorts due to limited, or non-existent, indexing for general (or medical) inflation of various thresholds and ceilings for subsidies and taxes.
  6. A full balance sheet accounting of how changes in reimbursement levels and spending commitments for Medicare will either empty its mythical trust funds of the future OR can't be used as financing for subsidized coverage in the below-65 health market OR won't be available as one of the few remaining sources of future general budget deficit reduction.
  7. The economic consequences of uncertainty and churning in health insurance and labor markets, due to the unprecedented level of congressional delegation to future bureaucratic rule writers and regulatory whisperers to determine what almost 2000 pages of alternately prescriptive and vague legislation actually means in practice.
  8. The long-term costs to future human capital and economic growth from depleting even more of the resources available to younger generations, in order to expand and increase already generous subsidies for the health spending-specific demands of the more affluent elderly and near-elderly.
  9. A view beyond the blinders of the official federal budget to examine the overall effects of the proposed House and Senate legislation on national health spending levels and (unsubsidized) insurance premium costs.
  10. Finally, a more politically realistic set of probabilistic estimates regarding the likelihood and sustainability of purported budget "savings" through such devices as the unsustainable Sustainable Growth Rate formula for Medicare reimbursements to physicians. Earlier this decade, other CBO analysts re-examined proposals to reform another set of long-term entitlement commitments--Social Security--by taking into account the uncertainty in any forecast of that program's finances--especially over the 75-year time frame used by the program's trustees. CBO provided an overview of that uncertainty and illustrated the range of possible financial forecasts using time-series analysis of historical data and a long-term actuarial model. This stochastic analysis presented more realistic ranges of probability for the economic and demographic variables that underlie projections for program finances over 75 years. At a minimum, we need a similar level of analysis of the limits of our knowledge regarding presumed Medicare "savings" as a whole, and ideally the larger matrix of health spending entitlements ahead.

Thomas P. Miller is a resident fellow at AEI.

Photo credit: iStockphoto/Jason Stitt

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