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CBO Decides Against Crazy Ruling That Would Kill Health Reform

This is going to be one of those posts where I try to convince you that a dull, technical decision by the Congressional Budget Office is really a very big deal. Here goes: The CBO has decided against counting premiums paid under an individual mandate as a tax. In other words, if the government says you have to purchase health insurance, and you give Aetna $50 to purchase some health insurance, the CBO has decided that you're not, in fact, paying a $50 tax to the government. That $50 will not be included in the price tag of the health reform bill.

To us laypeople, that sounds pretty intuitive. But not so to CBO. In 1994, a pretty similar question was decided in the other direction. Robert Reischauer, then the director of the CBO, decided that the premiums that individuals were charged to purchase private insurance under Clinton's plan would be included in the budget. This didn't change the nature of the proposal. But it made its cost tag look huge.

Donna Shalala, Clinton's secretary of health and human services, later termed the ruling "devastating." And it was. It made health care reform look obscenely expensive. And the same thing could have happened this year. Rather than costing $100 billion per year or so, it could have cost a couple trillion a year. No change in the plan. Just a change in the budgetary treatment of the plan.

But CBO is not repeating that decision this year. Or at least doesn't seem to be (as Jon Cohn says, the ruling is a bit opaque). My understanding of CBO's argument is that an individual mandate operating in a largely private insurance market is no problem. Go to something that's more like single-payer lite -- where the public insurer, say, is dominant -- and that changes.

Even so, I'm cheered by the simple existence of this ruling. The fact that CBO is explaining its thinking before legislation arrives yet more evidence that CBO appears, insofar as it can, to be trying to help out on health reform. By all accounts, they're offering their rulings early, erring on the side of caution, and not making any sudden moves that will disrupt the reform process. They're telling reformers how to work around CBO, in other words. That's an important change from past years.

For more on the decision, see CBO director Doug Elmendorf's blog post.

Update: Commenter CastorP kindly writes, "You should link to your Peter Orszag profile--it was reading that where I got a good sense of how important the CBO is." Link to my own work? I think I can manage that.

By Ezra Klein  |  May 28, 2009; 1:11 PM ET
Categories:  Budget , Health Reform  
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Good to hear. You should link to your Peter Orszag profile--it was reading that where I got a good sense of how important the CBO is.

Posted by: Castorp1 | May 28, 2009 1:53 PM | Report abuse

I guess I wasn't thinking. HEre is the link for any of you interested in reading the Orszag profile:

Posted by: Castorp1 | May 28, 2009 1:55 PM | Report abuse

I don't know how they were going to tax employer paid health benefits if they counted premiums as a tax.

At least so far they haven't stooped to taxing taxes!

Posted by: RedBird27 | May 28, 2009 2:08 PM | Report abuse

Could it be that the Obama White House reached out to the CBO as part of their process, and the Clinton White House did not?

Inclusion: Why 2009 won't be like 1994.

Posted by: tylerstone | May 28, 2009 3:02 PM | Report abuse

Very interesting. I heard second hand one Douglas Elmendorf's reaction to the Clinton administration's howls of pain and rage back in the day. According to my source he said "I'm willing to do a re-grade, but as I always said when I was an ec 10 TA, regrade the whole thing and not just the point you brought up."

In other words, he was having fun pretending to threaten Bill (or more likely Ira Magaziner) that too much complaining about counting mandates as a tax would force the CBO to re-examine their conclusion that the plan wouldn't add to the deficit.

My source was certainly in a position to chat with Elmendorf and is highly reliable. I don't blame Elmendorf. Believe me, that was mild compared to most fantasies about what to do with Ira Magaziner.

by the way, whenever I read one of your posts on the CBO I am reminded of Elmendorf's office at the NBER. It was decorated by the Gary Larson cartoon entitled "Beware of Doug"

Posted by: rjw88 | May 28, 2009 9:19 PM | Report abuse

I think Clinton's plan was much more heavily weighted towards a public option. In fact, I'm not sure it even had a private option so if the only option was to pay money into the Government's black hole then that is a tax.

I still don't understand why Medicare and Medicaid's track records don't scare everyone away from any sort of public option? They have obscene levels of fraud and inefficiency. Haven't they proven that the Government is really really bad at running a health insurance company?

Posted by: fallsmeadjc | May 29, 2009 10:14 AM | Report abuse

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