Free Markets, Free People

Peter Suderman


The Fantasy Of BaucusCare’s Savings

There are a number of people dancing in the street because there’s finally a bill in existence that the CBO says will reduce the deficit. Not by much, but that’s really irrelevant – it does the job that meets one of President Obama’s primary goals.

Of course the plan, authored by Sen. Max Baucus, has also come under fire from both the right and left for various aspects each doesn’t like. But that CBO endorsement, well, they’re pretty happy about that.

However, a close examination of that endorsement should warn everyone with an understanding of politicians and Congressional history off of the plan.

Let me explain. While the CBO does indeed say this plan will reduce the deficit, it makes it very clear that such a reduction is contingent upon some very unlikely happenstance.

First the savings:

[T]he Chairman’s proposal would reduce the federal deficit by $16 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law, with a total effect during that decade that is in a broad range around one-half percent of GDP….

Now that which is very, very unlikely:

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairman’s proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

The Baucus plan, just like the House plan, derives the majority of its “savings” in cuts in Medicare spending. However, as Peter Suderman at Reason’s Hit & Run explains, the likelyhood of those cuts ever being made, at least to the point necessary to reduce the deficit, is poor at best. Why?

Because of the mechanism the bill uses to make them:

It’s true that the Baucus plan, which creates a commission to figure out how to cut Medicare costs, sets up a slightly more robust framework for cost-cutting than currently exists. But that commission still only gets to make recommendations, and Congress still has the power to block them.

To review – in order to meet the CBO numbers, the bill must be enacted and remain unmodified for two decades. And, Congress must enact the Medicare cuts to the level required of the bill to achieve those reductions.

I ask you – what would you bet on either of those things actually ever coming to pass?

~McQ