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Obamacare and the Deficit

11:21 AM, Dec 23, 2009 • By MATTHEW CONTINETTI
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In remarks on Monday, President Obama said:

The Congressional Budget Office now reports that this bill will reduce our deficit by $132 billion over the first decade, and by as much as $1.3 trillion in the decade after that. So I just want to be clear, for all those who are continually carping about how this is somehow a big spending government bill, this cuts our deficit by $132 billion the first 10 years, and by over a trillion in the second. That argument that opponents are making against this bill does not hold water.

Obama's statement was based on the CBO's December 19 analysis of Harry Reid's manager's amendment. Which analysis, one should note, was not some sort of incontrovertible, God-like pronouncement from on high; indeed, the CBO acknowledged in its December 19 letter that

These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades. However, the legislation would maintain and put into effect a number of procedures that might be difficult to sustain over a long period of time. Under current law and under the proposal, payment rates for physicians' services in Medicare would be reduced by about 21 percent in 2010 and then decline further in subsequent years. At the same time, the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation. The projected longer-term savings for the legislation also assume that the Independent Payment Advisory Board is fairly effective in reducing costs beyond the reductions that would be achieved by other aspects of the legislation.

These are fairly large assumptions! Congress does not have a good record at cost control, to say the least. Entitlements tend to grow more expensive over time, not less. And the "payment rates for physicians services in Medicare," the so-called "doc-fix," has never happened.

Meanwhile, as the Dude would say, "New information has come to light, man":

Savings from Medicare touted by Democrats as a means to pay for the Senate health care bill were double-counted and the legislation will increase the deficit, not decrease it, a senior Republican senator said Wednesday, citing a new letter from the Congressional Budget Office.

As the Senate prepares for a crucial vote before final passage of a massive overhaul bill that Democrats argue will reduce the deficit by $132 billion over 10 years, Sen. Jeff Sesssions, R-Ala, said the nearly $500 billion in cuts to Medicare actually will add $300 billion to the deficit.

From the CBO's letter to Sessions (not yet posted online):

The improvement in Medicare's finances would not be matched by a corresponding improvement in the federal government's overall finances. CBO and JCT estimated that the PPACA as originally proposed would add more than $300 billion ($246 billion + $69 billion + interest) to the balance of the HI trust fund by 2019, while reducing federal budget deficits by a total of $130 billion by 2019. Thus, the trust fund would be recording additional saving of more than $300 billion during the next 10 years, but the government as a whole would be doing much less additional saving.

CBO has not undertaken a comparable quantitative analysis for the PPACA incorporating the manager's amendment, but the results would be qualitatively similar. The reductions in projected Part A outlays and increases in projected HI revenues would significantly raise balances in the HI trust fund and create the appearance that significant additional resources had been set aside to pay for future Medicare benefits. However, the additional savings by the government as a whole-which represent the true increase in the ability to pay for future Medicare benefits or other programs-would be a good deal smaller.