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Health Care: A Sound Financial Base is Job 1

Editor’s note: This article by Chuck Blahous is the central issue at stake with health care reform. Sound financial footing is a key enabler to our role in the world. Our influence, our ability to help people (here and abroad), and our ability to defend freedom and democracy depends on having a sound financial base.

President Obama has promised that he will not sign health insurance reforms that add to the deficit over the next ten years.  According to CBO, the current House bill exceeds this standard, not by the oft-reported figure of $239 billion, but by $820 billion.  The proposed reforms would also add more than $150 billion to the deficit in the tenth year alone, such that it is clear that the fiscal damage would compound beyond the ten-year window.  The widely-shared perception that the bill is “only” $239 billion short of the goal line is due to its having been packaged with unrelated tax increases totaling $581 billion over ten years.  Whatever the merits of these other income tax increases, they have nothing to do with either health care reform or with “bending the cost curve.”
The distinction is crucial, because the President has pledged not to sign health care reforms that themselves add to the deficit.  He did not say that he would sign health care reforms that severely worsen the deficit, imposing large income tax increases to offset this further fiscal damage, before the urgent work begins of addressing the enormous current-law deficit.  As of now, the House legislation is still a full $820 billion beyond the fiscal standard presented to the public.
See the article in today’s Politico below for more:

Nearly lost in all of the publicity about the Congressional Budget Office’s finding that proposed health care legislation would worsen the current-law deficit by $239 billion over the next 10 years is something far more troubling: The proposed legislation would actually worsen the imbalance in federal health care programs by more than $800 billion over the next 10 years — and far more thereafter.

CBO’s analysis shows quite clearly that the proposed changes to federal health care commitments would worsen the deficit by $1.042 trillion, with proposed health care savings netting only $219 billion. The net effect of these health care “reforms,” therefore, is to dig the financial hole in federal health care programs deeper — not by $239 billion but by $820 billion over the next decade.

Worse yet, by the 10th year of the analysis, the additional annual costs of the proposed health care changes would be more than four times the expected savings — worsening the imbalance by more than $150 billion in the 10th year alone. Thus, the more than $800 billion gap would only grow larger over time, with no end in sight.

Just this past week, President Barack Obama promised explicitly that such an outcome would not come to pass: “I will not sign health insurance reform — as badly as I think it’s necessary, I won’t sign it if that reform adds even one dime to our deficit over the next decade — and I mean what I say.”

Legislation currently under consideration doesn’t even come close to this standard. The health care changes now on the table wildly exceed, by more than $800 billion, the fiscal criteria the president has said he will insist upon.

The oft-cited finding that these bills as a whole would add “only” $239 billion to the deficit over 10 years is based on the Joint Committee on Taxation’s accompanying analysis of provisions to increase unrelated income taxes by $581 billion during the same time period.

Whatever the merit of these other income tax increases, they have nothing to do with health care reform or with “bending the cost curve.” They are, rather, being proposed to offset part of the true $820 billion deficit impact of proposed federal health care expansion.

Why is this important? The representation has been made that health care reform is the key to repairing the long-term budget outlook — more important than Social Security reform, more important than all other entitlement reforms, more important than all other spending reforms combined.If health care reform fails to fix any of these fiscal problems — instead adding enormously to projected deficits — then the government will have created an irreparable fiscal problem. In this nightmare scenario, health care reforms far worsen the outlook, both in the near term and the long term, and large tax increases are needed simply to offset this further damage, even before beginning the serious work of repairing our dire current-law fiscal outlook.

Republicans and Democrats will necessarily disagree about the appropriate balance between spending restraint and tax increases to address our increasingly urgent fiscal situation. But we can’t even have a serious discussion about these urgent repairs if enormous tax increases are required merely to finance an absurd further-upward ratcheting of our already unsustainable federal health care commitments.

Whatever happened to health care reform being the key to fixing our long-term finances? We all agree that the status quo in health care financing is unsustainable. Exactly what is the economic argument for making this dreadful situation worse by $800 billion in the near term and by trillions over the long term?

The president’s words are very clear: He has promised not to sign health care reforms that add one dime to the deficit. He most definitely did not say, “I will sign health care reforms that add enormously to the deficit and impose large tax increases to offset that.”

The public and the press need to demand that Congress meet the president’s explicitly stated standard. This means repairing not a $239 billion hole but an $820 billion one in the current legislation. And that is just to stay even; true health care reform would improve the outlook, not merely leave us on an unsustainable course.

Health care negotiators thus have, at the very least, $820 billion further to go. Anything less, and health care “reform” would have passed on the basis of a destructive and misleading foundation.

Chuck Blahous is a senior fellow at the Hudson Institute who previously served as deputy director of the National Economic Council. He is currently writing a book titled “Social Security: The Unfinished Work.”


July 29, 2009 - Posted by | Cost, Federal Government, healthcare | ,

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