Paul Ryan and the true cost of health-care reform

After the Blair House Summit, a bunch of you e-mailed to ask what I thought of Rep. Paul Ryan's argument that the bill "does not control costs" and it "does not reduce deficits." There's a lot going on in Ryan's remarks (which you can read here), so this might take awhile. But before we dive so deep into the weeds that we're seeing earthworms, here's the basic conclusion: Ryan's critique scores some clean points and also deploys a couple of dirty tricks, but it doesn't damage the bill's claim to reduce deficits and doesn't even engage whether the bill controls costs.

But let's begin at the beginning. Ryan says that "the true 10-year cost of this bill in 10 years" is $2.3 trillion. On this, Ryan is right, but misleading. In Ryan's favor, Democrats have artificially lowered the cost of the bill by pushing its start date back to 2014, even as its 10-year budget window begins in 2010. The 10-year cost of the bill is really only counting six years of operation. This was a deceptive effort to keep the bill's price tag under $1 trillion, even as the bill's price tag was really quite a bit more. Point for Ryan.

Ryan gets the $2.3 trillion by looking at what health-care reform will spend in 2019 and extrapolating that number out across the next 10 years. I'll trust that he did the calculation correctly. The problem is that Ryan uses the classic “This Is A Big Number" technique to imply that the bill is financially irresponsible, when putting the number in context would show just the opposite.

According to the Congressional Budget Office, the bill cuts the deficit far faster in the second decade than in the first. That's because the revenues and savings grow much faster than the spending. The bill might cost $2.3 trillion, but it either raises or saves $2.95 trillion, for a net deficit impact of negative $650 billion. So although Ryan uses the price tag to imply that the bill's spending is somehow worse in the second decade than in the first decade, he omits the information that's actually relevant for his presentation on cost control and deficit reduction.

I imagine the congressman would respond to my previous point by saying that he doesn't buy the CBO's estimates. His argument here has to do with how the federal budget is structured, or what's called "double-counting." And it's complicated, so bear with me.



Social Security and Medicare both have trust funds which are supposed to store money to pay for the program's future costs. If a new policy saves Social Security $50, and the government then doesn't have to borrow $50 that it would otherwise have had to borrow to pay for Social Security, that improves the deficit outlook by $50. With me so far?

But let's say that the government then takes that $50 from the trust fund and sends it over to an education program. From the perspective of what's called the "unified government budget" -- which is the budget we use -- there's no difference because the government is not borrowing any more money. To use an example Peter Orszag favors, from an accounting perspective, this is the same as a parent giving his son $50. The parent may be $50 poorer, but the family's finances are unchanged.

That trust fund, however, has to eventually be paid back. If you don't leave the money in the trust fund, then you have to assume that other programs will be cut later when the trust fund's debts come due. You have to assume, in effect, that you'll take the money back from your son, or from another part of the family budget. Otherwise, you're double-counting the cash, because you're assuming that it lowered potential borrowing for Social Security (count one) and for the education program (count two).

According to Ryan, there's about $124 billion in double-counted money in the bill. Assuming his math is correct (and no one I talked to said it wasn't), that's a fair critique. What isn't fair is to suggest that this is about the health-care bill. This is how the government does its accounting.

The money flowing into the trust funds is continually used to pay for other government priorities. And borrowing for other government priorities is not built into trust fund estimates, even though that borrowing also competes with the trust funds in the future (live by unified government accounting, die by unified government accounting). This was true when Rep. Ryan voted for the Medicare Prescription Drug Benefit and the Iraq War, and it's true now.

And many budget experts think it's the right way to do things. Though it's true that the trust fund will have to be repaid either through spending cuts or tax increases, the trust fund will be repaid. Otherwise, the government defaults and everything goes to hell. This assumption that the government will pays its debts is not only necessary for accounting purposes but also for, say, investing in Treasury bonds, or in the stock market, or any other facet of American economic life that presumes the continued fiscal soundness of the American government. You can argue, they say, that the government shouldn't use trust fund money to do other things, but that's not the same thing as saying the accounting shouldn't presume repayment.

But whether you think the accounting is right or its wrong, it's not playing fair to change it on the fly. By the rules that both Republicans and Democrats use, the bill cuts the deficit.

Wherever you fall on double-counting, $124 billion isn't much money in the scheme of this thing. Ryan gets his big money a few paragraphs later, when he makes a much more dishonest argument. The play here is simple, and it's beneath a politician of Ryan's reputation: He attaches the cost of fixing the Medicare Sustainable Growth Rate to the health-care reform bill.

For a longer explanation of this issue, head to this post. The short version: In 1997, Republicans passed the Medicare Sustainable Growth Rate into law. The provision created a simple equation meant to hold down Medicare costs and cut doctor payments when they rose. But the provision was passed when Medicare's costs were uncommonly low. Suddenly, SGR was forcing huge cuts rather than the modest adjustments that had been intended. So legislators began voting to delay implementation rather than cut doctor payments.

The first delay was passed in 2003, under Republicans. Then again in 2005, also under Republicans. Then in 2006, under Republicans. Then in 2007 and 2008, under Democrats. For those keeping count at home, this is a policy in a Republican bill that Republicans delayed three times and Democrats delayed twice. What's needed is to reform the system so we stop delaying it. And we will need to do that -- and this is important -- whether or not health-care reform passes.

To put this slightly differently, imagine you're buying a new house. But your old house needs $20,000 in roof repairs. You will have to pay for those repairs whether you move or whether you stay, because you can't have your roof caving in come the next heavy rain. Are your roof repairs part of the cost of the new house? If you think so, then you agree with Ryan. If not, then you don't. The SGR problem predates health-care reform and exists irrespective of health-care reform's fate. Attempts to lash the two together are nonsensical.

This has gone on long enough, so we'll address the final point quickly. Ryan says that the chief actuary of Medicare says the administration is bending the cost curve up. That's not quite what he showed.

Rather, health-care reform initially increases spending to cover the uninsured. That raises the level of spending, but not the curve. The curve actually flattens. If you extend the trend out to the second decade -- which is what Ryan does in other parts of his presentation, including for the $2.3 trillion figure -- the curve goes down. Kevin Drum graphed it here, concluding that "a decade after the reforms kick in, we'd be providing health care to at least 30 million more people and spending no more than we would if we did nothing," which is to say, the curve-bending elements of the plan would've saved enough money to cancel out the new coverage expenses.

To sum up, then, Ryan makes some good points about the true cost of the bill and realities of the federal budget. But he purposefully omits any mention of the bill's expected savings, disingenuously attaches the price tag of a broken Republican policy onto the health-care reform bill, and selectively stops extrapolating trends when they don't fit his points. It's a presentation designed to make the bill look less fiscally responsible than it really is.

But don't listen to me. Robert Reischauer is the head of the Urban Institute. He's also one of the CBO's most revered former directors, in no small part because his relentlessly honest cost estimates helped doom Bill Clinton's bill in 1994. I reached him earlier today and asked whether he thought this bill made fiscal sense. "Were I in Congress and asked to vote on this," he replied, "I'd vote in favor." The bill isn't perfect, he continued, "but it at least has the prospect for creating a platform over which more significant and far-reaching cost containment can be enacted."

The same cannot be said for the status quo.

