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Obama Care Big Price Tag |
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REVIEW & OUTLOOK - AUGUST 6, 2009 - Wall Street
Journal
ObamaCare's Real Price Tag
The funding gap is a canyon by year 10.
As ObamaCare sinks in the polls, Democrats are
complaining that the critics are distorting their
proposals. But the truth is that the closer one inspects
the actual details, the worse it all looks. Today's
example is the vast debt canyon that would open just
beyond the 10-year window under which the bill is
officially "scored" for cost purposes.
The press corps has noticed the Congressional Budget
Office's estimate that the House health bill increases
the deficit by $239 billion over the next decade. But
government-run health care won't turn into a pumpkin
after a decade. The underreported news is the new
spending that will continue to increase well beyond the
10-year period that CBO examines, and that this blowout
will overwhelm even the House Democrats' huge tax
increases, Medicare spending cuts and other "pay fors."
In a July 26 letter, CBO director Douglas Elmendorf
notes that the net costs of new spending will increase
at more than 8% per year between 2019 and 2029, while
new revenue would only grow at about 5%. "In sum," he
writes, "relative to current law, the proposal would
probably generate substantial increases in federal
budget deficits during the decade beyond the current
10-year budget window." (The House bill has changed
somewhat in the meantime, but not enough to alter these
numbers much.)
The nearby chart shows this Grand Canyon between
spending and revenue, including CBO's long-term
predictions. While these are obviously very coarse
estimates, there's also a projection of a $65 billion
deficit in the 10th year-and "deficit neutrality in the
10th year is . . . the best proxy for what will happen
in the second decade."
That's not our outlook. That's what White House budget
director Peter Orszag told the House Budget Committee in
June. He added that "If you're not falling off a cliff
at the end of your projection window, that is your best
assurance that the long-term trajectory is also stable."
The House bill falls off a cliff.
And the CBO score almost surely understates this deficit
chasm because CBO uses static revenue analysis-assuming
that higher taxes won't change behavior. But long
experience shows that higher rates rarely yield the
revenues that they project.
As for the spending, when has a new entitlement ever
come in under budget? True, the 2003 prescription drug
benefit has, but those surprise savings derived from the
private insurance design and competition that Democrats
opposed and now want to kill. The better model for
ObamaCare is the original estimate for Medicare spending
when it was passed in 1965, and what has happened since.
That year, Congressional actuaries (CBO wasn't around
then) expected Medicare to cost $3.1 billion in 1970. In
1969, that estimate was pushed to $5 billion, and it
really came in at $6.8 billion. House Ways and Means
analysts estimated in 1967 that Medicare would cost $12
billion in 1990. They were off by a factor of 10-actual
spending was $110 billion-even as its benefits coverage
failed to keep pace with standards in the private
market. Medicare spending in the first nine months of
this fiscal year is $314 billion and growing by 10%.
Some of this historical error is due to 1970s-era
inflation, as well as advancements in care and
technology. But Democrats also clearly underestimated-or
lowballed-the public's appetite for "free" health care.
ObamaCare's deficit hole will eventually have to be
filled one way or another-along with Medicare's unfunded
liability of some $37 trillion. That means either
reaching ever-deeper into middle-class pockets with
taxes, probably with a European-style value-added tax
that will depress economic growth. Or with the very
restrictions on care and reimbursement that have been
imposed on Medicare itself as costs exploded.
On the latter point, the 1965 Medicare statute
explicitly stated that "Nothing in this title shall be
construed to authorize any Federal official or employee
to exercise any supervision or control over the practice
of medicine or the manner in which medical services are
provided." Yet now such government management of doctors
and hospitals is so pervasive in Medicare that Mr. Obama
can casually wonder in a recent interview with Time
magazine how anyone could oppose the "benign changes"
that he supports, such as "how the delivery system
works." Oh, is that all?
Democrats will return in the fall with various budget
tweaks that will claim to make ObamaCare "deficit
neutral" over 10 years. But that won't begin to account
for the budget abyss it will create in the decades to
come.
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