Tuesday, December 22, 2009

The Voice of Experience

Memo to Liberals:  Read the Full CBO Report Before You Shoot Your Mouth Off


As part of their suicidal rush towards ruining the nation's healthcare system, King Hussein Obama the First and his minions must be overjoyed that the latest Congressional Budget Office (CBO) scoring of the effect of their latest monstrosity on the federal deficit appears to be a positive one.  More specifically, in a letter http://www.cbo.gov/ftpdocs/108xx/doc10868/12-19-Reid_Letter_Managers.pdf dated December 19, 2009 to Majority Leader Senator Harry Reid, the CBO estimates that the adoption of Senate Amendment 2786, also referred to as the "Manager's Amendment", which is the current version of the Senate healthcare reform bill, will lead to a net reduction in the federal deficit of $132 billion over the next ten years. 


First of all before we probe the details of this report, it's worth remembering that His Majesty has frequently claimed that reforming our nation's healthcare system would be a significant factor in reducing our nation's budget deficits.  For example, here's an excerpt from His Majesty's speech to a joint session of Congress on September 9th, 2009:

Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem. Nothing else even comes close.

Emphasis added.


For those of you with long memories, which necessarily excludes liberals, you might remember that His Majesty's initial budget projected a net increase in the federal debt from 2010 to 2019 of $10 trillion.  http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf  (If you don't feel like searching through this document for the $10 trillion dollar figure we recommend you read my previous post on this budget at http://delta-man.blogspot.com/2009/03/voice-of-experience_14.html )  Simple mathematics, once again a challenging task for liberals, reveals that the savings from this comprehensive healthcare reform bill of $132 billion will lead to a reduction in the overall projected ten year deficit of 1.32%.  In other words, instead of a total ten year deficit of $10,000,000,000,000, the ten year deficit will be $9,868,000,000,000.  Sounds like a winner to me.  I'm sure our largest creditor, the Chinese, will take comfort in this reduction in our deficit. 


As long as we're playing with numbers here's one more way to look at this supposed solution to our nation's deficit problem.  If essentially nationalizing approximately 15% of our economy leads to a 1.32% reduction in our deficit, we only need to nationalize another 1,117% of our economy to balance our budget.  I'm somewhat hesitant to point this out though because some liberal out there might site this statistic as a justification for nationalizing the whole economy.




So how does the CBO arrive at their $132 billion figure?  A good place to start is by looking at Table 2, Estimated Changes in Direct Spending and Revenues Resulting from the Patient Protection and Affordable Care Act, Incorporating the Manager's Amendment, which starts on page 5 of the report.  First of all you'll see a section entitled "Changes in Direct Spending (Outlays)".  The first three items are the gross costs of the bill:




Ten Year







Health Insurance Exchange

$       336

Subsidies to individuals to purchase insurance

Reinsurance and Risk Adjustment




Transfer of funds from insurance companies to attempt to "even out" the effect of insuring high-risk patients.

Effects of Coverage Provision on

   Medicaid and CHIP



Increased coverage due to relaxed eligibility requirements.





$       851



So how does His Majesty pay for this gross cost?  Lying directly below these gross costs on Table 2 is a subsection entitled "Medicare and Other Medicaid and CHIP Provisions" which contains total reductions in spending of $438 billion.  These are the much discussed cuts in Medicare and other federal health programs spending.  The obvious question is will these cuts actually take place.


Congress has been down this road before.  Typically a law is passed which calls for some form of cut in Medicare reimbursement rates in the future.  As that date approaches senior citizens and advocacy groups put pressure on the Congress to rescind the cuts.  Usually at the last possible moment, the Congress gives in.  For example, late in 2006 the Congress passed HR 6408 to avoid a 5.1% reduction scheduled to take effect on January 1, 2007.  http://pn.psychiatryonline.org/content/42/2/11.full


Before you start pounding on the CBO for including this unrealistic estimate remember what their job is.  They are supposed to judge the budgetary effect of the bill as written, not consider future legislative action.  So by including this $438 billion reduction all the CBO is saying is that if the Congress is willing to stick to its guns, which is worth noting that they have not in the past, this amount of money will be saved.  I'm not a betting man but I wouldn't put money on these reductions actually being made.


The last section in Table 2 under spending is entitled "Other Changes in Direct Spending" and contains an innocuous sounding but very dangerous provision called Community Living Assistance Services and Supports (CLASS).  Skip ahead to page 11 and you'll find a description of this new program.  CLASS is a new federal program for long-term care insurance.  The CBO estimates that the establishment of this program will reduce the deficits by $72 billion over the ten year period 2010-2019.  How do they arrive at that figure?


It's really quite simple.  People will start to enroll in the program and pay premiums for care that they won't need until years in the future.  The CBO recognizes this fact by stating the following:


However, the program's cash flows would show net receipts for a number of years, followed by net outlays in subsequent decades.


In other words, the CLASS program would be building up a reserve for the payment of future services.  Some people, especially those with more prudence than your average tax and spend liberal, might refer to this $72 billion as restricted cash, not deficit reduction, since it will ultimately have to be paid out.  In short, of the CBO's 132 billion savings, over half, this $72 billion, is the result of the implementation of this program.  Pulling this $72 billion out leaves us with a $50 billion reduction or 0.50% of the projected $10 trillion deficit over the ten year period from 2010-2019.


Another obvious question related to this CLASS program is will it actually charge premiums sufficiently high enough to cover its costs.  The current bill says it will but I tend to doubt that.  Medicare and Medicaid are flat broke, as is Social Security.  Why should CLASS be different?  Somehow I fear that in twenty years we'll all be talking about how to fix the fiscal mess due to the underfunding of CLASS.




Now let's turn back to page 6 and look at the second half of Table 2 to see the effect of His Majesty's bill on revenues.  Here's where the liberal starts to flex their muscles.  Included in this section are all the new taxes and penalties such as:


New Tax/Penalty

Ten Year





Penalty Payments by Employers and Uninsured Individuals

$         43


Excise Tax on High-Premium Plans



Associated Effects of Coverage Provision on Revenues



Fees on Certain Manufactures and Insurers



Additional Hospital Insurance Tax



Other Revenue Provision







$       517













That's a nice hunk of change.  Left unsaid is the effect of all these new taxes on the public that pays them.  As a general rule though you can count on businesses to pass these taxes onto their customers if possible so ultimately you'll end up paying them in one form or another.  It's so typical of liberals that this new program which is supposed to provide all these benefits and significantly reduce our deficit for free is actually based on a massive tax increase. 


Before I leave this revenue section it's worth noting that Reinsurance and Risk Adjustment Collections yields $121 billion over the ten year period.  Remember that this provision was estimated to cost $120 billion over the ten year period so in essence it's a wash.  In theory it sounds easy.  Charge the insurance companies that have less high risk customers and give the money to the insurance companies that have more high risk customers.  In practice I think we'll find that this is a lot more complicated than a punch drunk dummy like Harry Reid thinks it will be.  Don't be shocked if ten years down the road we're reading stories about how some insurance companies are scamming this system and not paying their "fair" share or there's differences of opinion on how to calculate the amounts due.  Furthermore, would you trust the federal government to simply collect this money and remit the full amount back to the insurance companies without taking a cut for themselves? 




As you might have guessed, such sweeping legislation as this might have an effect on other federal programs and consequently lead to addition spending.  Since His Majesty, King Hussein Obama the First, is in such a damn hurry to get this done the CBO had to report the following on page 12:


CBO has not completed an estimate of the discretionary costs that would be associated with the legislation.  Such costs would include those arising from the effects of the legislation on a variety of federal programs and agencies as well as from a number of new and existing programs subject to future appropriations.


Well, well.  I guess it would make too much sense to take our time and consider the full impact on this bill.  At least the CBO didn't completely punt on this one.  They identified two effects of the legislation, costs to the IRS for implementing the eligibility determinations, etc, and costs to the Department of Health and Human Services (HHS) and the Office of Personnel Management for implementing changes to the federal insurance programs of between $5 to $10 billion for each of these two main changes.  So in other words, take our adjusted $50 billion savings and knock another $10 to $20 billion off it for a new figure of between $30 to $40 billion.




Of course, your average liberal has an answer for everything and after reading the preceding analysis most will simply shrug their shoulders and say so what.  Go ahead and knock down the $132 billion in savings to $30 billion.  Knock it down to zero.  We're laying the groundwork for the future.  This claim is exactly what His Majesty said in his remarks of December 21st http://www.whitehouse.gov/the-press-office/remarks-president-save-award-and-making-government-more-efficient-and-effective


The Congressional Budget Office now reports that this bill will reduce our deficit by $132 billion over the first decade, and by as much as $1.3 trillion in the decade after that.  So I just want to be clear, for all those who are continually carping about how this is somehow a big spending government bill, this cuts our deficit by $132 billion the first 10 years, and by over a trillion in the second.


The CBO discussion of the effect of the bill on the ten year period from 2020 to 2029 and beyond starts on page 15 of the report.  You will search far and wide for this supposed $1.3 trillion savings.  So where does His Majesty come up with this figure? 


If you look at page 16 you'll find some estimates of the expected increase in the various provisions of the bill.  Using an excel spreadsheet and starting with the suggested base year of 2019, you'll come up with a projected savings of $1.249 trillion.  In my calculation, I used a projected increase in the Exchange Premium Credit and the Small Employer Tax Credit of 7.0% since the report is silent on these two provision.  If you run the math though, one provision stands out like a sore thumb.  The expected saving in Medicare, Medicaid and the CHIP program are expected to increase 15% per year for a whopping $2.581 trillion savings.  This wildly optimistic estimate reduces the gross cost of the program from $2.846 trillion to $265 billion.  Sounds too good to be true?  For reasons explained above, it is.


While you won't find this $1.3 trillion savings directly in the report you will find this little gem on page 15:


Although CBO does not generally provide cost estimates beyond the 10-year budget projection period (2010 through 2019 currently), Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation's health care and health insurance systems. A detailed year-by-year projection for years beyond 2019, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great.


Emphasis added.




There's one other little gem in this report that's worth looking into.  On page 2 of the report the CBO reports the following:


CBO and JCT have determined that the legislation contains several intergovernmental and private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).  The total cost of those mandates to state, local, and tribal governments and the private sector would greatly exceed the thresholds established in UMRA ($69 million and $139 million, respectively, in 2009, adjusted annually for inflation).


So what does this mean?  Flip ahead to page 20 and you'll find a discussion of the impact of this legislation as required by the Unfunded Mandates Reform Act.  This act http://www.sba.gov/ADVO/laws/unfund.pdf  was passed in 1995 and is supposed to among other things, as disclosed in Section 2 of the Act:


(3) to assist Congress in its consideration of proposed legislation establishing or revising Federal programs containing Federal mandates affecting State, local, and tribal governments, and the private sector by—

(A) providing for the development of information about the nature and size of mandates in proposed legislation; and

(B) establishing a mechanism to bring such information to the attention of the Senate and the House of Representatives before the Senate and the House of Representatives vote on proposed legislation;


Section 424 of the act requires the Director of the Congressional Budget to prepare an estimate of the amount of the unfunded mandates on both other governmental units, i.e. state and local governments, and the general public.  The thresholds for preparing these reports are $50,000,000 for other governmental units and $100,000,000 for the general public.  These amounts are adjusted annually for inflation which is why the CBO report lists thresholds of $69,000,000 and $139,000,000 respectively.


This section also contains a "loophole" for those situations, such as this one, where the CBO can't make an estimate of the unfunded mandates.


''(3) ESTIMATE NOT FEASIBLE.—If the Director determines that it is not feasible to make a reasonable estimate that would be required under paragraphs (1) and (2), the Director shall not make the estimate, but shall report in the statement that the reasonable estimate cannot be made and shall include the reasons for that determination in the statement.


This is exactly what the current report does.  But if you read over page 20 carefully, the report is hardly good news for the non-federal sector of our society.  Consider these statements:


The most costly mandates would be the new requirements regarding health insurance coverage that apply to the private sector. The legislation would require individuals to obtain acceptable health insurance coverage, as defined in the legislation. The legislation also would penalize medium-sized and large employers that did not offer health insurance to their employees if any of their workers obtained subsidized coverage through the insurance exchanges.


The legislation would impose a number of mandates, including requirements on issuers of health insurance, new standards governing health information, and nutrition labeling requirements.


And of course the term "unfunded mandate" has a precise definition so there are additional potential expenditures that might be required:


As conditions of federal assistance (and thus not mandates as defined in UMRA), the legislation would require state and local governments to comply with "maintenance of effort" provisions associated with high-risk insurance pools. New requirements in the Medicaid program also would result in an increase in state spending. However, because states have significant flexibility to make programmatic adjustments in their Medicaid programs to accommodate changes, the new requirements would not be intergovernmental mandates as defined in UMRA.


Or in other words, His Majesty is going to require the states and local governments to spend more money in Medicaid but if the states want to make cuts in other areas of the program, and take the resulting political heat, they're free to do so. 




So what do you need to take away from this long discussion?  First of all, the CBO reports that His Majesty's healthcare reform is budget neutral provided that the Congress follows through on massive, unpopular reductions in Medicare.  Second, like most liberal proposals, this bill contains massive tax increases and requires unknown but large expenditures by state and local governments and the general public.  Third, this bill contains dangerous and potentially disastrous provisions like the establishment of a new federal insurance program, CLASS, and the transfer of funds between insurance companies without the federal government taking some of the money and/or screwing it up.


And perhaps even more important than these points is that the bill doesn't even work.  As explained above, the bill does basically nothing to reduce the deficit.  Furthermore it doesn't even provide universal coverage which I thought was the whole point off this damn bill.  If you look on page 8 of the report, you'll find that approximately 23 million nonelderly residents would still be uninsured by 2019.  So after ten years, only 94% of the legal nonelderly residents of the country would have insurance coverage.  God forbid this legislation passes but if it does I'm sure some liberal wacko is already gearing up for the big fight to cover that last 6%.

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