Budget brawl: Experts butt heads on health reform

By Jeanne Sahadi, senior writer

NEW YORK (CNNMoney.com) -- Some of the smartest budget experts say the new health reform law will do much to reduce the deficit. But there are others who say it more likely will be a budget buster.

It's hard to know who's right, since both sides make assumptions about the future -- in particular, whether lawmakers will stick to the law as written. Or, if they don't, whether they'll make a deficit-reduction measure better or worse.

Those who swear the new package will reduce deficits point to preliminary estimates from the non-partisan Congressional Budget Office. The CBO projects the package of reforms could reduce the deficit by $143 billion over the first 10 years, and by more than $1 trillion over the second decade.

Indeed, supporters say those numbers probably underestimate the potential savings, because the legislation contains many pilot programs that could reduce the growth in health costs over time, but which the CBO does not assign any value to.

In the other corner, there are budget experts who say the CBO did an excellent job, but the agency was directed to consider proposals that are either political fantasy or designed to make the deficit picture prettier.

The two camps are quarreling over a number of provisions in the bill. Here's a look at just a few:

Inclusion of CLASS Act

One is a new voluntary long-term care insurance program called the CLASS Act.

The CLASS Act is estimated to raise $70 billion in revenue over 10 years.

That's because premiums will be collected for five years before the program starts paying out benefits.

Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, contends in a blog post that counting that revenue as a deficit reducer is "egregious budgeting and the worst of timing gimmicks. And policymakers have now left the new CLASS entitlement program in a dangerously underfunded position -- just what we need."

Not so, according to the liberal Center on Budget and Policy Priorities (CBPP), which put out a brief subtitled, "Charges of budget gimmickry are unfounded."

For one thing, the CBPP brief notes, "benefit payments from CLASS will be fully financed by premiums that beneficiaries pay and interest earnings. In its early years, as the program starts up, premium collections will substantially exceed benefits payments."

And besides, the group adds, the health reform package still reduces the deficit even without the CLASS Act revenue. In that case, the new law would reduce deficits not by $143 billion, but by $73 billion.

The CBO in a letter to Sen. Tom Harkin, D-Iowa, last fall, said there is a fair chance the CLASS Act would also reduce the deficit in its second decade but by less than it does in the first. However, the agency also estimates the program could increase the deficit in the third decade and beyond even though the law requires that premiums be set to ensure the program's long-term solvency. (Here's a look at the agency's reasoning.)

Exclusion of the 'doc fix'

Critics of the health reform package have complained not only about what's in the law, but what's excluded.

Not accounted for, critics say, is the so-called "doc fix," which would permanently increase Medicare reimbursement rates for doctors.

Under current law, Medicare physician reimbursement rates are scheduled to be cut by 21% this year and by small amounts thereafter. That would help reduce federal health care spending.

But there is legislation that is likely to be enacted that would permanently rescind that cut, and instead institute a 1.2% increase in 2010 as well as a new sustainable growth rate formula going forward.

That legislation costs more than $200 billion over 10 years. Enacting the "doc fix" with the health reform law likely would increase the deficit by an estimated $59 billion in the first decade, the CBO said in a letter to Rep. Paul Ryan, R-Wisc.

MacGuineas believes the "doc fix" should have been included in the health reform package, in which case lawmakers would have been required by budget rules to pay for it. "This isn't a gimmick so much as just being downright irresponsible."

White House budget director Peter Orszag and the CBPP say the cost of fixing the physician reimbursements is unrelated to health reform. "The federal government will incur this cost regardless of health reform, not because of it," the CBPP said in its briefing.

Raise money first, spend more later?

Critics also contend the health reform package costs more than advertised because it includes 10 years of revenue to pay for six years of spending.

It's true that many of the law's revenue provisions that will pay for reform take effect before many of the bill's most expensive benefits.

But MacGuineas doesn't buy the critics' arguments on this one. "Actually this could be considered fiscally responsible. (Over time) the savings accumulate more quickly so the bill stays (more than) balanced."

For former CBO acting director Donald Marron, however, the biggest concern is not will health reform be paid for -- the ingredients are there for that if Congress sticks to the plan.

Rather, it's that many of the health reform "pay-fors" are no longer going to be options for lawmakers to use when it comes to all of our other debt problems.

For instance, the law reduces reimbursement rates for private insurers that offer Medicare Advantage plans. That's real savings that could have gone to pay for, say, the "doc fix," Marron noted. But now it's off the table.

"I worry for the reason that we've got a big fiscal problem," Marron said. "We have a bunch of arrows in our quiver [to deal with that problem]. But provisions of the health legislation use some of those arrows not to get our fiscal house in order but to expand programs." To top of page

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