CBO Speaks Again

The latest report from the CBO responds to a request from four Republican members of the House Ways and Means Committee including Camp, Ryan, Barton and Kline who asked:

"for additional information about the effects of the specifications regarding health insurance coverage. In particular, you asked about the effects on enrollment in private coverage, in the new public plan, and in Medicaid; the effects on private-sector insurance premiums and the labor market; the longer-term cost of the plan; and the allocation of its net budget impact between outlays and revenues.

This was a pretty complicated request and you know the CBO is a busy place these days. The response is a "doozy" as Donald Marron summarized quite succinctly. As Marron notes, the report makes two key points. The first is that the public plan would not destroy the market for private health insurance which has been a key complaint raised against the public plan. Republicans have argued research by the Lewin Group shows the public plan to have a devastating effect on private insurance. There have been charges the Lewin Group research is biased and should be ignored.

Marron wisely points out that the two use differing assumptions and thus come to differing conclusions. The CBO being a non-partisan body but still an Obama appointee, presents the case most likely favoring the Obama Administrations desire to include a public option while the Lewin Group, being an entity of United Health Insurers presents the case most favorable to the insurance industry position. The truth as always is likely to lie somewhere between the two.

Marron points to two key assumptions that effect the disparate conclusions:

First, CBO assumes “that only firms with 50 or fewer employees would be permitted to buy coverage through the exchanges.” Lewin, in contrast, assumes that all employers would have access to the exchange.

The House plan gives a new governing official authority to decide which employers have acccess to the public plan. As a result both CBO and Lewin Group are left to predict what that governing official will allow five years from now. CBO bases its analysis on the assumption the official will allow employers with up to 50 employees to utilize the public option while Lewin assumes there will be no restriction on the number of employees and all employers will be allowed to use the plan. Marron also points out the CBO lists several reasons why employers might prefer private insurance, chiefly though the the preferable tax treatment of employer provided benefits, whereas Lewin places less weight on these other benefits.

The second overall key point from CBO is crushing, in fact Keith Hennessey calls this point as TKO. Hennessey's conclusion in a nutshell, "the proposed new health spending would grow faster than the proposed new income tax increases, the House health bill would increase the long-term deficit." The President has said on several occasions he would not sign legislation that increased the deficit in the short or long term. Gamer over if you assume the President made that promise based on his entire rationale for health care reform to begin with. Read Hennessey's full post to appreciate how far off the mark the House legislation actually is, but as a teaser I will post his graph showing just how devastating the CBO long term projections of the effect of the legislation on the budget and deficits:


So while you will see headlines like this Democrats cite CBO to boost healthcare case suggesting the latest CBO was a boon to the case for the House legislation, the more significant finding of the CBO is buried in the second to the last line of the article:

The latest CBO analysis also said the reform proposal would increase budget deficits even though a proposed new tax on millionaires would help cover costs over the next decade.

There is no squaring that finding with these words from the President:

Make no mistake: the cost of our health care is a threat to our economy. It is an escalating burden on our families and businesses. It is a ticking time-bomb for the federal budget. And it is unsustainable for the United States of America.

We were fooled once by such an argument back in January before the stimulus was passed, shame on us. Fool us twice, well, in a word "Waterloo."