Paul Ryan had a lot to say at the Health Care summit about costs and the deficit, but there is one thing I'd like to focus on, namely his line that
And what has been placed in front of them is a bill that is fill of gimmicks and smoke and mirrors.
Now what do I mean when I say that?
First off, the bill has ten years of tax increases and ten years of Medicare cuts to pay for six years of spending. The true ten year cost when subsidies kick-in? $2.3 trillion.
I hear this a lot, as a way of saying the cost of the bill is being misrepresented. But the reality is that if you ask the question, what is the cost of this thing, how much does it spend, over the next ten years, the CBO will say that it will cost $871B and have revenue and savings offsets to produce a net reduction in the deficit of $132B. But these are only somewhat helpful numbers. The reality is that we could frame the fiscal impact of the bill any way we want. What is the cost over the next twenty years? the next 100? or go back and ask the impact over the first ten after full implementation. Or the first twenty.
I think the best way is to go out to the year furthest away that CBO calculates on an annual basis, namely 2019. What is the bill doing at that point. From the original CBO Pdf:
• The gross cost of the coverage expansions, consisting of exchange subsidies, the net costs of expanded eligibility for Medicaid, and tax credits for employers: Those provisions have an estimated cost of $199 billion in 2019, and that cost is growing at about 8 percent per year toward the end of the 10-year budget window. As a rough approximation, CBO assumes continued growth at about that rate during the following decade.
• The excise tax on high-premium insurance plans: JCT estimates that the provision would generate about $35 billion in additional revenues in 2019 and expects that receipts would grow by roughly 10 percent to 15 percent per year in the following decade.
• Other taxes and other effects of coverage provisions on revenues: Increased revenues from those provisions are estimated to total $74 billion in 2019 and are growing at about 7 percent per year toward the end of the budget window. As a rough approximation, CBO assumes continued growth at about that rate during the following decade.
• Changes to the Medicare program and changes to Medicaid and CHIP other than those associated directly with expanded insurance coverage: Savings from those provisions are estimated to total $106 billion in 2019, and CBO expects that, in combination, they would increase by nearly 15 percent per year in the next decade.
In other words, the bill is spending almost $200B a year at that point, and saving and creating revenues of slightly more than that. But the interesting part to notice is the growth rate in the various components, The plus side is growing at almost 13% and spending is only growing at a 8.9% (with the main driver being the double digit growth of the exchanges). I think that is a lot more accurate way to look at the cost of Health Care Reform than on any artificial time window.