NCPA - National Center for Policy Analysis

Boehner and Pelosi's Medicare Doc Fix to Cost Billions

March 31, 2015

The headline of the Congressional Budget Office's (CBO) damning assessment of the fiscal damage done by H.R. 2 — the so-called Medicare doc fix negotiated secretly by House Speaker John Boehner and Minority Leader Nancy Pelosi — is that the deal will add $141 billion to the deficit over the next ten years.

Even this appalling outcome is sugarcoated. After unpacking the gimmicks underlying the estimate, the actual result is much worse, says NCPA senior fellow John R. Graham.

First, the worst gimmick: The bill increases spending on the Children's Health Insurance Program (CHIP) by almost $40 billion. Yet, the CBO only includes less than $6 billion in its estimate of the bill's costs. How did over $34 billion of CHIP spending simply vanish into thin air? Easily! Much of it was already in the baseline.

Welcome to the weird world of federal budgeting, where the so-called baseline is the source of much mischief. Recall the entire reason Congress had to patch Medicare payments to doctors at least once a year for over a decade is because the budget baseline was determined by an unrealistic formula called the Sustainable Growth Rate (SGR).

Because that formula would have led to pay cuts that would have made it uneconomical for physicians to see Medicare patients, Congress had to increase physicians' fees beyond the baseline. Most importantly, until now, those pay increases have been paid for by spending offsets.

Physicians never had their Medicare pay cut to the level dictated by the baseline. There was simply no crisis that had to be averted by last week's budget busting Medicare doc fix.

CHIP, on the other hand, has a permanent baseline of $5.7 billion per year, even though current law only funds CHIP through 2015. How can this be? According the CBO:

  • Current law provides no new budget authority for CHIP after 2015.
  • Following the rules for developing baseline projections of programs with such expiring funding authority, CBO's projections reflect the assumption that CHIP will continue to be funded so as to operate as it will under the law in effect immediately before the date after which no new budget authority is provided.

The baseline derives entirely from an assumption that CHIP will continue, even though there is no legal basis for that assumption. For the Medicare doc fix, on the other hand, which is continuously re-authorized, there is no such assumption.

Source: John R. Graham, "Budget Gimmicks Hide the $213 Billion Cost of Medicare Doc Fix," National Center for Policy Analysis, March 30, 2015. 


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