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Health Reform All Dressed Up With Nowhere to Go

Philip Moeller

The nonpartisan Congressional Budget Office (CBO) is the closest thing Washington has to an official scorekeeper of government finances. Its regular budget reports are waved aloft by Republicans and Democrats alike, usually to cite some numbers (often out of context) to prove a point. Thus it's been with the CBO's excruciatingly fair-minded reports on Obamacare.

When the CBO evaluates the budget impact of a piece of legislation, the process is known as "scoring." During the contentious debate over the law in 2009 and 2010, the CBO's scoring efforts carried a lot of weight. The agency concluded the law would not make federal deficits worse, but actually lower them over time. There were howls, as there always are over CBO findings from those who disagree with them. And the agency does have to adhere to some rules for evaluating budget issues that don't make sense in the real world. But the CBO is largely viewed as an honest broker in what are devilishly complex matters.

The U.S. Supreme Court decision in June upheld the law's constitutionality. While the court upheld the law, it freed states from compliance with one of its major provisions--an extensive expansion of Medicaid to pay for health services to millions of low-income Americans without health insurance.

The states are free to either accept the ACA's Medicaid expansion or keep their programs pretty much as-is without facing any penalties from Washington bureaucrats. Many states, mostly those led by anti-Obamacare Republican governors, have either told the feds to take a hike or are sitting out the decision until after the November election.

Because the court's Medicaid ruling changed a basic component of the law, the CBO decided to take another look at the budgetary impact of the ACA, and recently issued two notable reports. The first scored the law again and concluded that it would now lead to an additional $84 billion reduction in federal spending over the next decade as compared with its prior projections.

Its report says the savings stem from the agency's best middle-ground estimate of the net effect of denying several million people access to expanded Medicaid services in states that reject the law's Medicaid expansion. Many of these people would instead seek subsidized insurance coverage in the law's new state insurance exchanges.

An exchange subsidy would cost the federal government an average of about $9,000 per household versus only $6,000 in expanded Medicaid expenses. The savings are produced by the fact that lots of people would simply wind up with neither Medicaid nor health insurance.

"Federal spending during that period for Medicaid and CHIP [the Children's Health Insurance Program] is now projected to be $289 billion less than previously expected," its report said, "whereas the estimated costs of tax credits and other subsidies for the purchase of health insurance through the exchanges (and related spending) have risen by $210 billion." An estimated $5 billion in other expenses reduces the net savings to $84 billion.

The agency declined repeated interview requests to provide a detailed explanation of how it arrived at this number. Its conclusions may, indeed, be a good-faith effort by smart and informed experts. But they have been forced to make many critical assumptions.

We do not know, and neither does the CBO, how many states will ultimately decide not to accept expanded Medicaid benefits for their residents. We thus do not know how many people will seek coverage and qualify for large federal subsidies in the new state insurance exchanges called for in the law. We don't even know which states will set up the exchanges or--either by express request or inaction--force the federal government to do it for them. We do know that we are running out of time for the exchanges to be operational by 2014--the date called for in the law.

With crucial Medicaid and state exchange issues unresolved, it will also be very hard for employers and private insurers to figure out what they will do. Employers face big questions about continuing to provide health insurance to employees or, instead, paying penalties and sending their employees to the state exchanges for coverage. This decision could, in some cases, be in the best interests of both the employer and the employee. It's also complicated by the repeated statement by tax-reform advocates that the tax deductions for employee health insurance should be ended.

In short, as the health reform timetable comes closer and closer to triggering some of its most important provisions, there is simply not a clear path to implement them.

In its second report, the CBO scored the Republican legislative proposal to toss out all of Obamacare and simply repeal the law. The agency said doing so would actually raise government deficits by a cumulative $109 billion in the period from 2013 to 2022. Again, it cued some predictable protests.

Perhaps the more important takeaway from both reports is not whether their numbers are spot-on accurate. How could they be? It's that whether we have health "reform" or not, America is being bankrupted by its healthcare spending, and we have yet to come to terms with this. Perhaps $109 billion seems like a big number. But in healthcare matters, it's a rounding error.

The nation's healthcare tab is projected at $2.8 trillion this year, a figure that includes private and government spending. This number is bound to increase. Rising numbers of baby boomers means larger numbers of Medicare beneficiaries. The slow economic recovery adds to poverty rolls and Medicaid usage. And there will be continued rises in the cost of healthcare procedures themselves.

If we were able to hold annual healthcare spending increases to just 5 percent a year, the 10-year tab for total spending still would be about $37 trillion. To put things in perspective, $109 billion is three-tenths of 1 percent of this total.

Twitter: @PhilMoeller

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