The Center's work on 'Deficits and Projections' Issues


CBO: Health Reform Is Working — and Costing Less

April 14, 2014 at 5:23 pm

In new estimates that it released today, the Congressional Budget Office (CBO) projects that health reform’s coverage expansions will cost less than it previously estimated.  That’s good news for two reasons:

First, the new cost projections come even as CBO also estimates that health reform will dramatically reduce the number of Americans without health coverage.  Second, the lower cost estimate likely means that health reform will reduce budget deficits even more than CBO previously estimated.

Let’s take these one at a time.

Health reform will cut the rate of uninsurance nearly in half.  CBO estimates that health reform will reduce the share of the non-elderly population without insurance from 20 percent in the law’s absence to about 16 percent in 2014 and about 11 percent in 2016 and beyond.  That’s 26 million more people with health coverage.

This coverage expansion also will cost less than the original estimates.  In March 2010, CBO projected that the coverage expansions would have a net cost of $172 billion in 2019.  In February of this year, the projected cost had fallen to $151 billion.  The latest estimate is $144 billion — a drop of 5 percent since February and 16 percent since 2010.  Major reasons for this decline are a 15-percent reduction in projected premiums in the health insurance marketplaces and a somewhat smaller decline in the cost of covering additional Medicaid beneficiaries.

On the deficit front, CBO estimated in March 2010 and again in July 2012 that, considering all of its provisions, health reform will reduce the deficits.  CBO cannot update that estimate because it is not possible to isolate the incremental effects of many of the provisions of health reform that cut federal health spending or increased revenues.  But since the estimated cost of the legislation has fallen, there is every reason to believe that health reform will reduce the deficit by as much or more than the earlier estimates.

Chairman Ryan’s Obfuscation: Part 2

April 10, 2014 at 2:10 pm

I explained earlier today the hollowness of House Budget Committee Chairman Paul Ryan’s attempt to deny that his budget cuts low-income programs deeply.  Ryan’s defense was that since total federal spending grows under his budget, how can we say it contains cuts, rather than merely slowing the rate of growth?  We disposed of this in my earlier post, but I want to dig deeper here to expose a budget trick Chairman Ryan is playing.

Sure, total federal spending grows under his budget in nominal dollars.  But that’s driven in large part by increases in Social Security and Medicare — whose costs rise with inflation and the aging of the population, among other factors — and interest payments on the debt.  Ryan cites trends for overall federal spending to mask the fact that his budget contains hefty cuts — even in nominal (non-inflation-adjusted) dollars — in key low-income programs like Medicaid and SNAP (formerly food stamps).

In his attempt to deflect our finding that 69 percent of his budget cuts come from programs targeted on Americans of limited means, Ryan says that Medicaid would receive over $3 trillion during the coming decade under his budget and that its costs would grow in all years after 2016.  Here’s what his too-clever-by-half response conceals:

  • Under the Ryan budget, expenditures for Medicaid, the Children’s Health Insurance Program (CHIP), and a few small related programs (i.e., expenditures for “budget function 550”) would fall — not grow — in nominal dollars between 2014 and 2016, from $357 billion to $311 billion.
  • While this figure would grow in nominal dollars after 2016, that would be from this shrunken starting point.
  • And it wouldn’t return to its 2014 level, even in nominal dollars, until 2022 — by which time health care costs will be substantially higher than in 2014, the population will be considerably larger, and the number of poor, elderly people in nursing homes will have risen considerably given the aging of the baby boomers.  That’s partly why, as my earlier post explained, tens of millions of less-fortunate Americans would lose health coverage and become uninsured under the Ryan budget.

A similar pattern marks the Ryan plan for the part of the budget that includes SNAP, Supplemental Security Income (SSI) for poor people who are elderly or have serious disabilities, the Earned Income Tax Credit, and other such programs.  In this part of the budget, as well, nominal spending wouldn’t return to its 2014 level until 2022.

Chairman Ryan has every right to propose severe cuts in any program he chooses.  But he should be straightforward about what he is proposing.

Chairman Ryan’s Response to the Center’s Analysis Doesn’t Hold Water

April 10, 2014 at 10:26 am

House Budget Committee Chairman Paul Ryan took exception to our finding that 69 percent of the non-defense spending cuts in his new budget come from programs for people with low and moderate incomes.  But he makes no attempt to refute our calculations, and his response both defies logic and conflicts with his own budget and even his own words.

For starters, we derived the 69 percent figure from the cuts that Chairman Ryan displays in his budget.  We added up his cuts in mandatory and non-defense discretionary programs, calculated how much of them would apply to low- and moderate-income programs, and derived the 69 percent figure.  Chairman Ryan was explicit that his budget makes substantial cuts in various programs — like SNAP (formerly food stamps), Medicaid, Pell Grants, and health reform’s subsidies to help people afford insurance — that are targeted on people with low or moderate incomes.

Responding to the 69 percent figure, the Chairman shifted direction in a new piece that he inserted this week in the Congressional Record.  He claimed these cuts aren’t really “cuts” at all; instead, they are simply smaller spending increases than would otherwise occur.  “A smaller increase is not a spending cut,” he wrote.

Well, two problems:

First, the Chairman is trying to have it both ways.  At the very start of his “Pathway to Prosperity,” he writes, “The House Republican budget cuts spending by $5.1 trillion over the next ten years.”  Apparently, he wants to brag to congressional budget cutters that his plan cuts spending deeply, while convincing critics of his budget cuts that they aren’t really “cuts” at all.

Second, the latter argument — that a cut isn’t really a “cut” — makes little sense.  For many programs, it costs more to provide the same services for its beneficiaries from year to year, because of inflation.  In addition, the population is aging and, thus, more people qualify for programs for elderly Americans each year.  For these reasons, the cost of providing the same level of benefits and services to people who qualify rises for various programs from year to year in nominal dollars — that is, in dollars not adjusted for inflation, population growth, or the population’s aging.

A budget allocation that doesn’t cover cost increases due to these factors means either that eligible recipients will see their services or benefits cut, or that some people who would otherwise qualify for those services or benefits are turned away.

For instance, Chairman Ryan claims in the piece he inserted in the Congressional Record that his budget spends more than $3 trillion in Medicaid over the next decade, with spending rising every year starting after 2016.  But his budget would repeal the Medicaid expansions that 26 states and the District of Columbia have adopted under the Affordable Care Act, thereby returning millions of low-income people to the ranks of the uninsured.  And his budget cuts Medicaid by $732 billion on top of that, relative to what the program would otherwise cost, which translates into a 26 percent cut by 2024.  An Urban Institute analysis of a similar cut in a past Ryan budget found that it would cause 14 to 20 million additional people to lose coverage.  Just ask the millions who’d lose Medicaid and end up uninsured whether they consider that a cut.

What’s true in government is true in life.  If a worker gets a 1 percent wage increase in a year in which inflation is 5 percent, that worker has suffered a 4 percent cut in living standards.  He or she has 4 percent less to cover the costs of food, housing, health care, and other necessities. Ask that person whether he or she has suffered a cut in living standards.

We stand by our analysis.

Ryan’s Medicare Proposals: the Latest

April 9, 2014 at 4:42 pm

House Budget Committee Chairman Paul Ryan’s Medicare proposals — summarized in a new CBPP analysis — have evolved since Ryan issued his Roadmap for America’s Future in 2010, but much is still the same in the budget plan he released last week.

The centerpiece of Ryan’s Medicare plan remains premium support — replacing Medicare’s guarantee of health coverage with a flat payment, or voucher, that beneficiaries would use to purchase coverage.  But the details have changed significantly over the years.

  • Ryan now retains a form of traditional fee-for-service Medicare as an option.  His earliest proposals would have phased out traditional Medicare, which would have substantially increased health care costs, since traditional Medicare has lower administrative expenses and payment rates than private insurance plans.
  • Ryan now bases the amount of the premium-support payment on a weighted average of bids by private plans and traditional Medicare.  In last year’s proposal, the payment would have been set below the average bid.
  • Ryan no longer mentions a limit on the annual growth of the premium-support voucher, as did his previous proposals.

Even with these modifications, Ryan’s premium-support proposal would disadvantage beneficiaries in at least two ways.  First, in many regions, traditional Medicare would cost more than the premium-support voucher, and, in these regions, beneficiaries who chose to enroll in traditional Medicare would have to pay higher premiums than under current law.  Second, beneficiaries who enrolled in a private plan would not receive the federally subsidized supplemental benefits that enrollees in private Medicare Advantage plans receive under current law.

Moreover, premium support could cause traditional Medicare to unravel — not because it was less efficient than the private plans, but because it was competing on an unlevel playing field in which private plans captured the healthier beneficiaries and incurred lower costs as a consequence.

The Ryan budget again proposes to raise Medicare’s eligibility age — now 65 — by two months per year, starting in 2024, until it reaches age 67 in 2035.   (Ryan’s Roadmap proposed raising the eligibility age to 69½.)  At the same time, the plan would repeal health reform’s coverage provisions.  Consequently, 65- and 66-year-olds would have neither Medicare nor access to health insurance marketplaces in which they could buy coverage at an affordable price and receive subsidies to help them secure coverage if their incomes are low.  Many would end up uninsured.

Finally, the Ryan budget includes other Medicare proposals from past years — increases in income-tested premiums, a cap on medical malpractice awards, and repeal of the benefit improvements in health reform (including closure of the prescription drug “donut hole”) — as well as a new proposal to increase Medicare cost sharing.  For more details, see our new paper.

Ryan Budget a Path to Adversity for Millions — and Maybe for the Economy Too

April 9, 2014 at 9:49 am

In my latest US News & World Report post, I reprise CBPP analysis showing that House Budget Committee Chairman Paul Ryan’s “Path to Prosperity” budget is, in fact, as CBPP President Robert Greenstein described it, a path to adversity for tens of millions of Americans.  I then discuss why it also could be a path to adversity for the economy as a whole.

Ryan can balance his budget within ten years with help from an analysis he requested from the Congressional Budget Office (CBO), which shows that the aggressive deficit-reduction path he outlines in his budget — while it would initially slow economic growth and reduce the actual deficit reduction achieved — would eventually encourage somewhat more growth and additional deficit reduction.

CBO’s analysis reflects mainstream economic thinking about deficit reduction’s effects on the economy:  it hurts by further reducing demand for goods and services when the economy is weak, but it helps by increasing national saving and investment when the economy is strong.  As I point out, CBO includes important caveats about the limitations of this analysis,

…stating, “The projections do not represent a cost estimate for legislation or an analysis of the effects of any specific policies.” Nor, did the budget office consider “whether the specified paths are consistent with the policy proposals or budget numbers that Chairman Ryan released.” And, finally, CBO emphasized that such estimates of budgetary and economic projections “are highly uncertain.”

In my post, I add a further consideration:

But what if the short-run negative effects of budget austerity are larger than CBO assumes, the economy’s underlying ability to sustain an ongoing recovery is weaker than CBO projects, and the economic effects from further delaying the recovery (such as suppressed business investment and worse long-term unemployment) have persistent adverse effects on the economy’s longer-term growth potential?

Former Treasury Secretary Lawrence Summers made a compelling case for each of these propositions at a recent CBPP conference on “The Path to Full Employment.” As Summers argues, “lack of demand creates, over time, lack of supply.” That effect is not in reflected in CBO’s analysis of the Ryan plan — and it’s not yet broadly embraced among economists. But if Summers is right, Ryan’s aggressive deficit-reduction plan would not only weaken the economy in the short term but also sap its longer-term growth potential and revenue-generating capacity.

That would defeat the whole purpose of Ryan’s exercise in austerity.

Click here to read the full US News post.