The Real Cost of the New Baucus Health Bill

Earlier today the Congressional Budget Office released its much-anticipated preliminary analysis of the new Baucus health bill.

I will have more to say about the cost estimate later, but for now I want to make one simple point: The media are systematically misreporting the cost of the bill. For example:

  • The New York Times: “The budget office analyzed the bill … its newly projected cost — $829 billion over 10 years.”

If you read CBO’s analysis carefully, you will see that it says no such thing. Instead, it says that the provisions in the bill that expand health insurance coverage will cost $829 billion over the next ten years.

Why is that an important distinction? Because, as I noted the other day, the bill increases federal health spending in other ways. For example, it spends about $11 billion to avoid a sharp reduction in payment rates for doctors in Medicare at the end of the year. And it spends almost $21 billion to make the Medicare drug benefit more generous.

If you go through the CBO cost estimate and add up all the new health spending programs, you will discover that the actual cost of the bill is more than $900 billion:

Perhaps I am nuts, but I think that policy debates should be informed by actual facts, including about budget impacts. And despite the ease with which I have learned to throw around the word “trillions”, I still think $75 billion is a lot of money.

So let me once again implore everyone commenting on the health debate: There is a difference between the cost of the Baucus bill ($904 billion) and the cost of its provisions to expand coverage ($829 billion). It is understandable that most commentary focuses on the health insurance provisions. But we should not forget the other $75 billion in spending on other initiatives. Dollar-for-dollar they deserve as much scrutiny as the coverage expansions.

Note on the numbers: The spending on the doctor fix is easy to find in the CBO report; it’s the first item on page 5 of the detailed estimates of direct spending impacts. The increases in other health spending programs are sprinkled through the nine pages of the direct spending analysis. I calculated the $64 billion figure by adding up all the individual line items that increased direct spending, with a couple of exceptions. First, I did not include the interaction effects that CBO lists as the end of the estimate because I was not sure how to allocate them; the interactions are large and could have a material effect on my estimate, potentially up or down. Second, there were a couple of programs in which it seemed appropriate to net a spending increase against a cost reduction before including it in my total (those cases were small). I am certainly open to other suggestions about how to add up the other spending in the bill.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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