NCPA - National Center for Policy Analysis


March 23, 2010

On Thursday, the Congressional Budget Office reported that the latest health care reform legislation would, over the next 10 years, cost about $950 billion, but it would also lower federal deficits by $138 billion.  Could this really be true?   Not according to Douglas Holtz-Eakin, former director of the Congressional Budget Office (CBO) and president of the American Action Forum.

How can the budget office give a green light to a bill that commits the federal government to spending nearly $1 trillion more over the next 10 years?   The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed.  So fantasy in, fantasy out.

In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges:

  • The health care reform legislation would raise, not lower, federal deficits by $562 billion, says Holtz-Eakin.
  • The bill front-loads revenues and backloads spending, meaning the taxes and fees it calls for are set to begin immediately, but its new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only six years of spending.
  • To operate the new programs over the first 10 years, future Congresses would need to vote for $114 billion in additional annual spending, but this so-called discretionary spending is excluded from the CBO's tabulation.
  • In perhaps the most amazing bit of unrealistic accounting, the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies, but Medicare is already bleeding red ink and the health care bill has no reforms that would enable the program to operate more cheaply in the future.

The bottom line is that Congress would spend a lot more; stead funds from education, Social Security and long-term care to cover the gap; and promise that future Congresses will make up for it by taxing more and spending less, says Holtz-Eakin.

Source: Douglas Holtz-Eakin, "The Real Arithmetic of Health Care Reform," New York Times, March 20, 2010.

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