Empty Promises, Redux

Are the administration's promises about the new health care law empty? Ezra Klein offers a series of rejoinders to some of the points that I made in my article examining promises made about the new health care law.

For example, I wrote that the president's promise that the bill would cost "around $900 billion" was undercut by the fact that, in addition to the $940 billion official score, the CBO later added $115 billion in discretionary spending. Klein responds that the bulk of that spending—about $86 billion—is not new spending. I'd make two points about this: First, part of the question is how we define what constitutes the cost of the law. Is it the cost of the new spending? Or is it the full cost to get it up and keep it running over ten years, regardless of whether that spending is new? Typically, when we think about a new program, or a replacement program, we think about its entire cost, even if some of that cost already existed. If it's the full cost, then the entire $115 billion figure is fair game. But let's say it's not, and we only add $29 billion to the official $940 billion price tag. We still end up with a $969 billion total. Calling that "around $900 billion" is, at the very least, a stretch. (It's also worth noting that the $940 billion price tag only covers the cost of the coverage provisions.)

As for the price of insurance, Klein points to the CBO's projection that premium prices in the individual market will go down. But as I noted in a post linked from the article, the price most consumers will pay only goes down after you factor in subsidies. The average pre-subsidy price, though, is going to rise, and if you accept the the CBO's projections, nearly half—about 43 percent—of those in the individual market won't get subsidies. According to the CBO, the rise will result from a combination of new mandatory benefits and individuals choosing to buy more expensive plans thanks to the subsidies. The total rise is estimated to be between 27 and 30 percent, but that rise would be partially offset by 1) rule changes in the non-group market and 2) an expected increase in the number of younger, healthier individuals buying insurance. The end result, according to the report: "CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law." Klein's argument that people are getting extra benefits in exchange for the higher premiums  ignores the question of who pays for the subsidies—ie: taxpayers, including, over time, some of the taxpayers who take the subsidies. So those benefits aren't free. And as I've said before, mandatory new benefits may or may not provide value to the folks getting them, but they definitely impose new costs.

What about the employer market? Klein says that the CBO "reported that costs in the employer markets, which serve 150 million, would go down slightly." But that's not quite right. Rather, the CBO projects very little change—possibly, as he says, a slight drop (about 2 percent) or, as he doesn't mention, a very slight hike (about 1 percent). Either may well turn out to be true. But many employers, at least, believe the law will ultimately result in higher health costs—and not without any reason, either.

Klein agrees with me that the administration engages in double-counting when it claims the law extends the solvency of Medicare. Which is important, because the claims made by the administration that Medicare is healthier as a result of the PPACA rely on a combination of double counting and cuts to Medicare advantage. But as to whether the law ultimately puts the program on better fiscal footing, he raises the question of whether IPAB—the new Medicare cost-control board—will be effective. He points to his column on why the GOP ought to stop opposing the board. I agree with Klein that a lot of the Republican rhetoric about the board is overblown. It's not a government takeover, nor is it likely to directly lead to one. But as I wrote earlier today, given its limitations and the political challenges it faces, I'm not terribly convinced it will lead to the cost-savings supporters hope for. And neither, for that matter, are CBO head Doug Elmendorf or Richard Foster, Medicare's chief actuary. But no matter what, the administration's specific claim that the law extends Medicare's solvency by 12 years is based on double counting, and incorrect.

Klein also takes issue with my argument that the law is paid for mostly by raising new revenue—i.e., by raising taxes—rather than by shifting around existing spending; according to the CBO, the law increases taxes by $525 billion over the next decade. Klein argues that I'm suggesting "that we're not spending money on the tax exclusion for employer-provided health insurance." He explains:

Most analysts put that tax break at about $250 billion a year, and the excise tax begins to pare it back. In effect, that's taking money from a federal subsidy for employer-provided insurance and putting it into health-care reform and deficit reduction, just the same that cutting Medicare Advantage reimbursements shifts money from subsidizing private insurance in Medicare and puts it towards health-care reform.

That's one way of thinking about it, but I don't think it's a common one. Klein is reframing the $250 billion that we would be collecting if we taxed employer insurance as "spending." But it's not. It's money that the government doesn't collect, which isn't the same thing. To think of it as Klein does, we'd have to think of every business tax break or personal deduction as a form of government spending. But I don't think most people do. That also reframes the excise tax—the mechanism used to collect some of that $250 billion—as, well, not a tax. That's probably not the most obvious way to think about it, although his post implies it is.

Moreover, the excise tax doesn't actually start the process of ending the tax subsidy for employer health care, as Klein says. Instead, it touches expensive plans that cost more than an arbitrary amount with a tax rate that is higher than either the corporate or personal income tax rates.

As a wrap up, Klein argues that a key difference between critics and supporters of the law is that critics think it's all bad, "all the promises are lies, etc." In fact, I think very, very few (and perhaps none) of the promises made about the law were lies, which is why I didn't use the word in the piece. Instead, I get the sense that the various promises represent a combination of overly optimistic thinking, exaggeration (some intentional, some not), and, mostly, the desire to sell the public on what the law's backers ultimately believe will be beneficial while papering over some of the law's messier political compromises.