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No Gimmick

Posted by Peter Orszag on March 04, 2010 at 02:28 PM EDT
 
The President has insisted since day one that health insurance reform should not add a dime to the deficit.  In keeping with this commitment, the President has put forward a health plan that would reduce deficits by roughly $100 billion over the next ten years and by roughly $1 trillion in the decade after that.

Recently, a lot of attention has been paid to a claim that this deficit reduction is achieved only through a business-as-usual Washington budget gimmick: paying for just a few years of costs with many more years of savings.

This charge is simply false—and let’s get the facts straight.
  • First, it’s true that loading savings upfront and costs in later years is a time-honored budget gimmick.  It has a single purpose—to hide the ball and make programs look paid for in the near term that will in fact substantially add to the deficit over the long-term.
  • Second, it’s also true that some of savings under the health plan start sooner than the major costs in the legislation.  We can move quickly to begin identifying waste and improving quality in the current health care system, as well as make certain reforms to rebalance the tax code.  But, the major coverage expansion does not occur until 2014, in part because we need to take time to establish a system of state-based exchanges through which private insurance companies will provide quality insurance to those not getting it through their employer. Still, it is important to note that the vast majority of the savings in the next ten years occur in 2014 and thereafter.
  • Third, this is not a budget gimmick.  The purpose the tried-and-true gimmick described above is to make a proposal that adds to long-term deficits appear fiscally responsible. But if that were the course we were taking, we would expect to see a large fiscal hole at the end of the first decade and larger and larger deficits in the second decade. Instead, over the long-term, the savings under the President’s plan are expected to grow faster than the costs.  So, when the Congressional Budget Office is done with its scoring, we expect it will find that the President’s plan reduces deficits by roughly $100 billion in the first 10 years and roughly $1 trillion in the decade after that.  In other words, health reform should reduce the deficit by growing amounts over the long-term.
Put simply: Health reform will reduce the deficit in this decade, and it will reduce the deficit by even more thereafter.  There’s no gimmick in that.
 
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