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Fiscal Realities

OMB Director Peter Orszag gives a final look at the fiscal realities of health reform prior to the House vote.

We are mere feet from the finish line to passing into law historic, fiscally responsible health insurance reform that will give more choice and security to those with health insurance, provide access to coverage to those without, improve the quality of health care for us all, and provide the most deficit reduction of any bill in over a decade.

With momentum building, it’s no surprise that opponents took to the morning talk shows and the Sunday newspaper op-ed pages in an attempt to undermine one of the signature accomplishments of the legislation under consideration today: the fact that it reduces the deficit by more than $100 billion over the first decade, and more than $1 trillion in the decade after that.

Especially at this late hour, it’s important to get the facts right. So let’s consider their main charges one by one.

First, critics charge that the bill uses 10 years of savings to pay for six years of spending. As I have posted before, if this were what we were doing, then health reform would blow a hole in the deficit after the first decade (or the budget window). Yet, as CBO has made clear again and again and in its final score issued last night, the opposite is true with health reform. In fact, the reform would reduce the deficit by a half percentage point of GDP -- or more than $1 trillion -- over the legislation’s second 10 years.

Second, we have heard that the bill is double counting Medicare savings.  To put on the green eyeshade for a moment, let’s be clear: the bill has been scored by using standard budget accounting – the same methods used for years. And again, CBO confirms that health reform will reduce the deficit over 10 years and over 20 years.

Looking at the budget as a whole, this bill will leave us with less debt over time, and that is what matters.

Third, critics contend that there is no way that savings and revenue adjustments put forward will actually happen.  No one has a crystal ball, but we do know how Congress has acted in the past.   When tough decisions were made in the past about our central benefit programs, these changes have tended to stick. As I have noted before, the Center on Budget and Policy Priorities (CBPP) has studied Medicare savings and found that: "Virtually all of the Medicare cuts enacted in 1990 and 1993, which accounted for a significant portion of the savings in those large deficit-reduction packages, were implemented...And most of the savings enacted in 1997 other than the SGR cuts – nearly four-fifths [emphasis theirs] – were implemented as well." 

Fourth, some have charged that there are hidden costs not being counted in the CBO score. One source is authorizations for discretionary spending for items related to health reform. Authorizations are just that; they are not expenditures, and Congress often does not act on them -- or can do so while cutting elsewhere so the overall amount of discretionary spending doesn’t increase.  The other source for these alleged secret costs is the need to fix the Sustainable Growth Rate (SGR) in Medicare, which otherwise would cut physician payments drastically. An SGR fix, however, is not in this bill -- so adding its costs to the legislation posits a piece of legislation that doesn’t exist. Moreover, and more importantly, the need to address the SGR is a longstanding issue that pre-dates health reform and would be an issue even if Congress didn’t undertake health reform.  Both Democratic and Republican Congresses and Administrations have applied temporary fixes in the past.

This brings me to a final point. Perhaps people are appropriately skeptical about some of these budget figures because over the past decade, budget gimmicks and fiscal irresponsibility became the norm. Massive tax cuts (which weren’t paid for) were passed and were presented as temporary to make them seem less expensive – even as supporters fully intended to make them permanent. New health care entitlements were signed into law without any offsets. Budget windows were manipulated to blind people from true costs. It is truly, and sadly, ironic that the central critics of the fiscal underpinnings of today’s health reform legislation are those who supported these policies --and led the way -- as our country spiraled from surplus down into deep budget deficits.

The legislation before the House represents the most important deficit reduction package that would be enacted in over a decade -- and, perhaps more importantly, represents the first serious piece of legislation that would begin the process of addressing our long-term fiscal imbalance by re-orienting the health system toward quality rather than quantity.  We stand by its CBO score. Later tonight, we expect a majority in Congress to stand by it as well – ushering in, among other things, a new era of fiscal responsibility.

Peter Orszag is the Director of the Office of Management and Budget