Weekly Newsletter: July 6, 2009
Health “Reform” Savings to Date: -$7.6 Billion
During Congress’ Independence Day recess, the Administration released proposed rules for physician reimbursement levels in 2010 that would eliminate the cost of physician-administered drugs from the Sustainable Growth Rate (SGR) mechanism used to calculate physician payment levels. According to the Congressional Budget Office, the rule, if implemented, would increase Medicare physician spending by $87.6 billion. Because the Administration did not propose offsetting savings for this new spending, one-quarter of the cost of the proposed change—nearly $22 billion—will be paid directly by seniors in the form of higher Part B premiums, with the remaining cost being absorbed by federal taxpayers.
The Administration’s proposal comes on the heels of a White House announcement that the pharmaceutical industry has committed to find $80 billion in savings to finance the cost of health reform. While details on the industry proposal remain unclear, press reports indicate that much of the proposed $80 billion in savings will not qualify under federal budgetary rules as reducing taxpayer outlays. As a result, the two proposals announced by the Administration will cost federal taxpayers at least $7.6 billion—and if the drug industry proposals do not materialize, significantly more than that amount.
Some Members may be concerned by the Administration’s apparent pattern of combining concrete steps to increase federal health care spending with vague and nebulous promises about future savings. Members may also note that the Medicare savings proposals submitted by the White House could easily finance the cost of repealing the SGR mechanism entirely—thus ensuring seniors’ continued access to physician services—if the Administration were not singularly focused on diverting spending reductions from Medicare to finance expansions of government-run health care to younger populations.
Senate Democrats Make It Harder to Hire the Poor
As they attempt to recover from a month which saw their initial plans for health reform legislation scrapped due to unacceptably high budget scores, Democrats on the Senate Finance Committee have discovered a potential “solution” that may be worse than the problem it attempts to remedy. In order to encourage firms to continue to offer health coverage to their workers, the Finance Committee’s revised proposal would require employers that do not offer coverage to pay for half of the cost of any Medicaid beneficiaries employed by the firm, as well as the full cost of any “low-income” subsidies for individuals with income up to three times the federal poverty level ($66,150 for a family of four).
Outside groups from the Heritage Foundation to the liberal Center for Budget and Policy Priorities have criticized the Finance Committee proposal, which could in practice lead to hiring discrimination against low-wage workers. For instance, a single mother would prove much less attractive to an employer from a financial perspective than a college-age student from a wealthy family—the former would cost the firm additional money in “fair share” contributions, while the latter would not.
More broadly, some Members may be concerned by the panoply of proposals that would raise taxes on businesses that cannot afford to provide coverage to their workers. At a time when unemployment stands at 26-year highs—and with job losses still rising—Members may believe that Democrat proposals to impose new job-related taxes on businesses comprise one sure way to delay economic recovery still further.
The Debt Time Bomb
Also during the recess, the Congressional Budget Office sounded yet another cautionary note about the fiscal impact of current government-run health programs—let alone any additional entitlements the Administration wants to create. Last Tuesday, CBO released a letter analyzing the potential impact of an increase in interest rates over the ten-year budget window. Specifically, the letter found that using the most recent “blue chip” economic forecast of long-term interest rate projections would increase total deficit spending by $1.2 trillion over ten years when compared to the March CBO estimate of the President’s budget. If interest rates returned to their average levels during the 1980s, the United States could face an additional $5.6 trillion in red ink—even before the effects of increased spending on health care entitlements are taken into account.
Many Members may be concerned by the implications of the CBO report, which suggests that Democrats have embarked upon health “reform” that will expand federal entitlement obligations while significantly overestimating the United States’ capacity to carry its existing fiscal obligations, let alone the impact of any future programs created. Particularly after Treasury Secretary Geithner’s claims of the United States’ fiscal rectitude were publicly mocked by an audience during his recent visit to China, Members may believe that Democrats would be wise to provide much more clarity—and spending restraint—before embarking on a new and costly initiative to expand government-run health insurance to as many as 120 million Americans.