The GOP's Fiscally Unsound Health Proposals

Commentary by John R. Graham

Source: Real Clear Policy

In May, Republicans in Congress announced a joint budget resolution that, if enacted, would repeal Obamacare and balance the federal books in ten years. That is all well and good. Unfortunately, when they pass health-care legislation that actually has a chance of becoming law, they fail to pay for their promises. Can they be trusted to repeal and replace Obamacare with fiscally responsible, patient-centered health reform?

Last month, the Congressional Budget Office estimated that repealing Obamacare would increase the federal deficit by $353 billion over ten years, not counting the economic growth that would result from repeal. Factoring in such growth, the deficit would still rise by $137 billion. So, if Republicans actually repeal Obamacare, they would still have to cut $137 billion of spending from elsewhere in the budget.

Yet the Republicans have not even proposed minuscule spending cuts to pay for their current health-related bills. Their latest lapse involves the medical-device excise tax. This is a 2.3 percent tax on medical devices — from pacemakers to MRI scanners — to help pay for Obamacare.

On June 18, every Republican in the House of Representatives who was present voted to kill the tax, as did about one-fifth of Democrats. With those 46 Democrats joining the majority, the votes in favor added up to 280, just eight short of the number needed to override the promised presidential veto. The bill awaits a vote in the Senate.

President Obama has promised to veto the bill because it is fiscally irresponsible. The CBO estimates that device-tax repeal will increase the deficit by $24 billion in the next ten years. Spending offsets? Zero. Nada. Zilch.

If there is a chance to get rid of any part of Obamacare, it should be taken at the earliest opportunity. So, by all means, Congress should eliminate the medical-device tax. And if a repeal bill can get enough Democrats to override the president’s veto, better yet.

However, Congress has no excuse for avoiding the spending offsets necessary to prevent the deficit from rising. Indeed, finding spending cuts is easier now that it was a few years ago, when the device tax was expected to generate much more revenue than it has. Repealing the medical-device tax without enacting spending offsets does nothing to repeal Obamacare; it just gives us a deficit-financed Obamacare.

This episode is the second time in 2015 that the Republican-majority Congress has voted to increase deficit spending on health care. In April, they jacked up Medicare spending on physicians’ fees — winning the praise of physician lobbyists. At least that time around, they found a few pennies on the dollar to pay for the increase. Still, the CBO estimates the so-called Medicare “doc fix” will add $141 billion to the cumulative ten-year deficit.

In the grand scheme of government expenditures, or even just health spending, these are small sums. To anyone who is earnestly looking for spending offsets, it is hard not to find them. For 2016, the medical-device tax repeal will cost the federal government just $1.8 billion of revenue, while it will spend over $1 trillion on Medicare and Medicaid.

President Obama himself has proposed a way to cut Medicaid spending that should appeal to conservatives. In his February 2012 budget, he proposed reforms to "provider taxes." Because the federal government automatically matches (or, in most states, more than matches) each dollar the state pays for Medicaid, hospitals and state politicians have figured out a neat trick to maximize federal payments. Hospitals agree to a special state "tax," and the money flows into the state Medicaid program — and thereby attracts more federal dollars. Most of that money becomes hospital revenue, so hospitals actually earn more than they are "taxed."

Congress could stop this abuse and thereby save $22 billion over ten years. All it has to do is steal the Medicaid proposal from President Obama’s 2012 budget, and it would pay for almost all of the revenue lost from repealing the medical device tax.

The Obama administration is not known for fiscal discipline, but even the president has had enough of Republicans’ fiscally reckless approach to health spending. It is long past time for congressional Republicans to walk the talk on balancing the budget.

John R. Graham is an Independent Institute senior fellow and a senior fellow at the National Center for Policy Analysis.