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More From the CBO on Reform Savings

By December 28, 2009Commentary

We are all undoubtedly wearying of the health care reform debate.   The ramifications of this particular legislative initiative, however, are so significant to the health of our citizens, our government finances and our economy, that far greater care should be paid than has been to date on its consequences.  While proponents continually try to portray the bills as significantly reducing the federal deficit and shoring up Medicare, neither is going to happen.  The Congressional Budget Office, just before Christmas clarified the minimal impact the Senate Bill would have on Medicare’s precarious financial situation.  (CBO has unfortunately taken to releasing information which may be used by opponents of the current reform bills at times when it will receive the least attention–on Fridays, the day before Christmas Eve, etc.)  (CBO Memo) (CBO Blog)

The specific issue that the CBO reacted to was the notion that somehow the supposed improvement in the Medicare Trust Fund from the Senate Bill was also reducing the Federal deficit. Under its current projection, Medicare’s “Trust Fund”, which is only an accounting mechanism, not an actual set-aside of cash, would have been exhausted by 2016.  The Senate reform bill would create a balance of around $150 billion in the Trust Fund in 2019, thus delaying its complete exhaustion by a few years.  The balance is largely created by substantial cuts in payments to hospitals and other providers.  Proponents have tried to claim that those same savings were paying for the costs in the reform bill of expanding coverage by providing subsidies.  The CBO explicitly rejected this double counting.

A blog post illustrates how every year in the last few years CBO has substantially raised its estimates of health spending above previous years’ estimates.    (The American Blog) While CBO says it tries to be conservative in projecting the effect of reform bills, history suggests that it has likely underestimated the costs again.  The nature of the provisions in the bills would lead to the same conclusion.  The good news for members of our audience is that continually increasing health spending creates a continuing demand for innovative solutions to lower the costs of delivering health care and control utilization, while improving health outcomes.  The private sector has shown resilience in creating such solutions, despite frequent government interference.

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