Myth: Health reform is necessary to reduce the federal deficit.
Fact: The Baucus bill will add as much as $376 billion to the deficit over the next decade. 

Now that the Senate Finance Committee has approved the Baucus bill and the Congressional Budget Office (CBO) has calculated its cost, AEI scholar Joseph Antos, a co-author of the Brookings report Bending the Curve: Effective Steps to Address Long-Term Health Care Spending Growth, explains that:

• The CBO has calculated that the Baucus bill will reduce the federal deficit by $81 billion over the first 10 years, and even more after that.
• However, the favorable budget score is based on the assumption that Congress will follow through on massive cuts to Medicare providers. Even the CBO questions the reality of those proposed cuts.
• In particular, the Baucus bill includes automatic cuts in Medicare payments to hospitals and other health care providers worth $240 billion. Congress is sure to override the cuts in later years. 
• Similar cuts to physicians have been "deferred" in each of the past 5 years, and the Baucus bill once again provides a one-year fix. Raising payments to physicians one year at a time means $217 billion in additional spending through 2019 that is not counted in the bill.
• Antos warns that it is likely that the Baucus bill will add as much as $376 billion to the federal deficit through 2019: a $240 billion increase will result from the proposed--but most likely never implemented by Congress--cuts to hospitals, home health agencies, and other Medicare providers; also not acknowledged in the bill are the $217 billion from higher physician payments if Congress continues to provide relief one year at a time from the formula-driven pay cuts. (That is $217 billion + $240 billion = $457 billion less $81 billion in savings = $376 billion extra cost).

"The President has endorsed a bill that will fall far short of paying for itself.  Congress continues to ignore the serious defects in a proposal that relies on cuts in existing health programs to pay for new health spending that will cost $829 billion through 2019, and as much as $2 trillion in the following decade." Antos argues that Congress should take a measured approach to health reform, committing to spending levels that are fiscally more responsible while solving real problems facing the American people. That means adopting a market-based reform agenda, including:

• Greater choice and transparency in the health insurance choices available to Americans, whether they obtain insurance through an employer or purchase their own coverage.
• Consumer-friendly information about treatment alternatives and their costs.
• Reduced regulatory barriers that limit insurance choices and cause health costs to go up.
• Reformed Medicare payment methods, replacing administered pricing with bidding approaches and payment tied to performance.
• Real-time monitoring of health system performance to identify emerging health problems and to improve our knowledge of the impact of clinical decisions on the population health status.

"Congress fails to recognize its own long record of failure to prudently address serious problems in the health system and rising deficits that threaten the economic well-being of the country. If Congress passes an overly-ambitious bill based on wishful thinking rather than on realistic cost accounting, the country will face higher taxes, higher insurance premiums, and demands for health care that cannot be satisfied," Antos warns. "A more responsible approach would be to replace government controls with clear financial incentives, better information, and place purchasing power in the hands of consumers."

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI. He is also a commissioner of the Maryland Health Services Cost Review Commission, and a health adviser to the Congressional Budget Office. Before joining AEI, Mr. Antos was Assistant Director for Health and Human Resources at the Congressional Budget Office.

Mr. Antos is available for interviews and can be reached at jantos@aei.org  or through his research assistant wistar.wilson@aei.org or 202.862.4876.