The Baucus bill

The CBO has scored the Baucus bill. A few notes:

  • First of all, it’s not a bill. Amazingly, the Senate Finance Committee doesn’t actually deal with legislation, it deals with specifications that staffers turn into legislation after the committee has completed its work. As the CBO observes:

    CBO and JCT’s analysis is preliminary in large part because the Chairman’s mark, as amended, has not yet been embodied in legislative language.

  • What the “bill” would do is establish a mandate on all Americans to acquire health coverage, at their own expense if necessary. It would include a steep fine on employers that do not offer health coverage, and on individuals who decline the health coverage offered by their employer. (This means that employers are given an incentive to offer the minimum plan, and employees are obligated to take it.)
  • The plan would also create “exchanges”, which really don’t have much to do with exchanging anything. Rather, they are vehicles for government subsidies. The exchanges would subsidize the purchase of insurance by low-income households.
  • The plan would create co-ops instead of a public option, but as I’ve noted, there’s no real difference between the two. Co-ops would eventually come to dominate the insurance landscape, and would be under effective government control, establishing a de facto single payer system. (Indeed, that is the whole point.) The CBO analysis largely ignores the co-ops though, concluding:

    The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.

    I wish I believed that.

  • The plan would be paid for by deep cuts in Medicare and a variety of new taxes, including a tax on the value of health insurance. (Remember when the Obama campaign savaged McCain for suggesting a tax on health insurance “for the very first time”?) The tax would apply to health insurance over a certain ceiling, but that ceiling would increase more slowly than health care costs are likely to increase, so in time virtually all health insurance would be taxed.
  • The plan is also paid for by unspecified savings that would be uncovered by a new Medicare Commission. Bizarrely, the CBO accepted this, and assumes that the commission would somehow find $22 billion in additional Medicare cuts.
  • Finally, the plan assumes a variety of cost-cutting measures will be carried out that almost certainly will not be. As the analysis notes:
  • These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. . . The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

  • Significantly, important provisions in the plan change their behavior in 2019, which not-so-coincidentally is the end of the period that the CBO analyzes. The CBO analysis therefore tells us nothing whatsoever about the impact of the legislation beyond the 10-year window, even setting aside the inherent uncertainties in long-term prediction. As the CBO notes:

    Many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great.

  • The CBO estimates that the plan would cut the number of non-elderly uninsured roughly in half, leaving 25 million without coverage.
  • In total, assuming all the budgeted savings take place that surely will not, the plan would cost $904 billion over ten years ($829 for the coverage provisions, and another $75 billion for various Medicare provisions), which would be paid for by $507 billion in new taxes and $329 billion in Medicare cuts.
  • As always, the CBO analysis is static, meaning that it does not take into account the deleterious effects that the plan would have on the economy.
  • Of course, the CBO analysis has nothing to say about the plan’s innovation-stifling effects, or about the plan’s deleterious effects on the quality of care in general.

UPDATE: Under realistic assumptions and counting off-budget items, the plan’s real cost is over $2 trillion. (Via Instapundit.)

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