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Why Henry Waxman Should Sacrifice a Goat to the Congressional Budget Office

If we've learned anything from the last few months, it's that we are all, on some level, slaves to the Congressional Budget Office. I thought I was pretty familiar with my analyst overlords. But Jon Walker has connected a few dots I'd forgotten about. The issue, as it is so often is these days, is the public plan.

Back in May, the Congressional Budget Office released a paper explaining it thinking on scoring health reform. "If a public plan dominated an exchange-based market," the office said, "then that component of the health insurance system would, in practice, be largely governmental. In that case, all of the transactions of the exchange should properly be considered part of the budget."

This is a huge deal. Imagine that the House passes its version of a public plan with Medicare bargaining rates. Imagine that this version of the public plan will actually save $200 billion over 10 years (this number, just to be clear, is hypothetical). But imagine that those savings mean the public plan will become the de facto choice. This is the favored vision for many liberals.

At least, it is until they get the CBO report back. If the CBO estimates that the public plan will collect, say, $2 trillion in premiums over that period (which would replace the $2.2 trillion private insurers would have collected), then health reform will suddenly cost $2 trillion more. All that will be paid for. The total result, in fact, will be to save money. But the sticker shock will be immense. And it could wipe out any rhetorical advantage liberals would have derived from the $200 billion in savings. The House will be saddled with a bill that appears to cost $3 trillion. The Senate will have a bill that appears to cost $1 trillion. The actual difference will be that the House bill saves Americans $200 billion. In an analytically honest political environment, the House bill would clearly be preferable. But we don't live in an analytically honest world. Walker concludes:

In the end, I think the CBO scoring will be the biggest single event in the whole reform debate. If the CBO says a specific public plan will reduce the cost of reform by hundreds of billions, I think it becomes politically unstoppable. If a public option is declared a massive expansion of government or found to do little to control cost, it will be in serious jeopardy.

He's probably right.

By Ezra Klein  |  July 1, 2009; 9:29 AM ET
Categories:  Health Reform  
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What? Why wouldn't the CBO score the $2 trillion in premiums as government revenues?

Posted by: tomveiltomveil | July 1, 2009 9:55 AM | Report abuse

Shouldn't the CBO be more friendly toward putting a reasonable (and honest) price tag on health care reform after the work that Peter Orzsag did to restructure the office? Or am I making that up?

Posted by: ErininAtlanta | July 1, 2009 9:55 AM | Report abuse

I'm not sure that I'm following Ezra's reasoning here. We know that the corporate media is going to raise hell under the circumstances described above, but that doesn't always translate into reduced public support. All of us are either uninsured or underinsured. We're not as easily discouraged as some would believe.

Posted by: cjo30080 | July 1, 2009 10:07 AM | Report abuse

As long as the public plan has premiums coming in then those would be scored by the CBO as well. You are worried about an imaginary problem here. If its going to cost 2 trillion and need to be supplemented by 500 billion in extra funds from government then that rightfully should be accounted for by the CBO.

As I have always said- the real question is what happens when the "self sustaining" public plan becomes insolvent because it costs more to cover what people consider "fair" while also only charging what people consider "fair". As long as the public plan will be allowed to fail if it becomes insolvent then I have no issues with letting liberals try and see firsthand where the real issues with healthcare are.

Posted by: spotatl | July 1, 2009 11:25 AM | Report abuse

In this argument there needs to be a fiscal "view" and total GDP based budgetary "view". Just to confine oneself to the government budgetary impacts is a recipe for failure.

Posted by: michaelterra | July 1, 2009 12:22 PM | Report abuse

The cost of the public plan would also have to include any subsidies from tax revenue in addition to premiums. In Medicare's case, for instance, premiums only cover 25% of the program's cost.

Posted by: tomtildrum | July 1, 2009 12:48 PM | Report abuse

This doesn't make sense - why are the premiums considered cost rather than revenue?

Posted by: Portia2 | July 1, 2009 1:59 PM | Report abuse

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