115 And The “Hole”

Doug Elmendorf, Director of the Congressional Budget Office:

Today CBO provided some additional information about the potential effects of H.R. 3590, the Patient Protection and Affordable Care Act (PPACA, Public Law 111-148), on discretionary spending (that is, spending that is funded through the annual appropriation process). This information updates and expands upon the analysis of potential discretionary spending under PPACA that CBO issued on March 15, 2010. By their nature all such potential effects on discretionary spending are subject to future appropriation actions, which could result in greater or smaller costs than the sums authorized by the legislation.

CBO does not have a comprehensive estimate of all of the potential discretionary costs associated with PPACA, but we can provide information on the major components of such costs. Those discretionary costs fall into three general categories:

  • The costs that will be incurred by federal agencies to implement the new policies established by PPACA, such as administrative expenses for the Department of Health and Human Services and the Internal Revenue Service for carrying out key requirements of the legislation.
  • Explicit authorizations for future appropriations for a variety of grant and other program spending for which the act identifies the specific funding levels it envisions for one or more years. (Such cases include provisions where a specified funding level is authorized for an initial year along with the authorization of such sums as may be necessary for continued funding in subsequent years.)
  • Explicit authorizations for future appropriations for a variety of grant and other program spending for which no specific funding levels are identified in the legislation. That type of provision generally includes legislative language that authorizes the appropriation of “such sums as may be necessary,” often for a particular period of time.

CBO estimates that total authorized costs in the first two categories probably exceed $115 billion over the 2010-2019 period. We do not have an estimate of the potential costs of authorizations in the third category.


SHOCKER: The Health Care Reform Already Costs More than We Thought it Would. Or more than we were told it would, anyway. “Olympia Snowe’s demands to slow down the process suddenly seem a lot more reasonable. . . . We haven’t done anything yet, and we’re somehow already at least a hundred billion dollars in the hole.”

Peter Suderman at Reason:

And remember: That original $950 billion sticker, which theoretically tallies up the first decade of costs, only counted 6 years of full-swing spending. And it ignored the cost of the insurance mandate, which, if counted, probably would have added an additional trillion dollars or more to the total cost. But as they say at The Onion“If you love America, you throw money in its hole!”

Anyone still willing to call this overhaul “fiscally responsible?”

Philip Klein at AmSpec:

The discrepancy between the new figures and the oft-cited $938 billion ObamaCare cost estimate comes because during the health care debate, the media only focused on the cost of the spending provisions aimed at expanding insurance coverage.

But the health care law also had all sorts of other discretionary spending costs, and implementation expenses, that were never calculated into a total figure. These include spending such as $39 billion for the Indian health improvement act; $34 billion in Federal Qualified Health Center grants; $9.1 billion in funding for the National Health Service Corps; and $5 billion to $10 billion in increased costs to the Internal Revenue service.

Add it all up, and it brings the cost of ObamaCare to $1.053 trillion from 2010 to 2019.

Megan McArdle:

Meanwhile, the CBO just came out and said that the health care reform was slated to cost $115 billion more than they said it would.  Why?  Because they didn’t have time to calculate the effects on discretionary spending such as new administrative capacity, demonstration projects, and continuation of successful short-term initiatives.  As my fiance notes, Olympia Snowe’s demands to slow down the process suddenly seem a lot more reasonable.

The progressive response on this, as I understand it, is threefold:

  1. We don’t have to fund this stuff
  2. Maybe we’ll cut something else to fund this stuff
  3. C’mon, who cares?

Predictably, I find none of these convincing.  Some of the stuff we do have to fund, because the agencies are going to have to have staff to deal with the new requirements; and the stuff we don’t have to fund is the demonstration projects that I was assured were going to bend the cost curve.  So if we save this money in the first ten years, we lose the possibility of lower cost growth after the first decade.

What’s really worrisome, however, is that I’m unaware of any happy surprises where it turns out this thing is going to cost less than expected.  It’s early days, yet, of course–but it’s a little too early to take rapidly mounting cost projections in stride.  We haven’t done anything yet, and we’re somehow already at least $100 billion in the hole.

Ezra Klein, responding to McArdle:


Megan McArdle has a post up saying that health-care reform is “already at least a hundred billion dollars in the hole.” That’s really not right, though it’s certainly true that the CBO’s estimate suggesting $115 billion in discretionary costs confused a lot of people. But let me just quote CBO Director Doug Elmendorf, who’s doing his best to clear up the confusion.

The potential discretionary costs identified two days ago include many items whose funding would be a continuation of recent funding levels for health-related programs or that were previously authorized and that PPACA would authorize for future years. (For example, those potential costs include $39 billion authorized for Indian health services that already receive appropriations every year.) CBO estimates that the amounts authorized for those items exceed $86 billion over the 10-year period (out of the roughly $105 billion total shown in the table provided yesterday). Thus, CBO’s discretionary baseline, which assumes that 2010 appropriations are extended with adjustments for anticipated inflation, already accounts for much of the potential discretionary spending under PPACA. That is one of the reasons that potential discretionary effects are shown separately from effects on revenues and mandatory spending in CBO’s cost estimates.

So that knocks out more than $86 billion of the $115 billion. What’s leftover is about $15 billion for administration and $10 billion in possible new discretionary spending. That spending may or may not happen, and if it does, it will need another vote in Congress, and it will have to be offset elsewhere in the budget.

More Klein

Brad DeLong

Jonathan Chait at TNR on McArdle:

That “as I understand it” turns out to be a key qualifier, because McArdle does not understand the progressive response at all. The progressive response, courtesy of Ezra Klein, is that this figure does not represent new costs of the Affordable Care Act at all


It’s funny how much more persuasive your arguments are when, instead of quoting your opponents claims before refuting them, you get to make up your opponents’ claims for them.

McArdle responds:

Ezra, among others, points to the CBO blog follow up which says that $86 billion of the new spending consists of continuing existing levels of spending in the Bureau of Indian Affairs and assorted other agencies.  In other words, just because they happened to stick this stuff in the health care reform bill, rather than somewhere else, doesn’t mean we should attribute the cost to the health care bill.  A number of readers have mentioned this, so I think this is worth writing more about.

It’s a fair enough argument, in one way, but it seems to me that we’re getting entirely too cute with what “really” constitutes a cost of the health care bill.  The “doc fix”, we’re told, “has to happen anyway”, so it shouldn’t be counted–even though the permanent changes to the SGR, which are going to cost hundreds of billions, are very clearly being offered as a quid-pro quo in exchange for the American Medical Association’s rather unenthusiastic support.  I’ve defended progressives on this, on the grounds that if it’s in a separate bill, well, the CBO has to score it as a separate bill.

But the corollary to this is that it’s in the bill, it’s a cost of the bill–even if you think the government would have gone and done this anyway at some other time.  I mean, I’m happy to use the argument that we should think about previous appropriations levels, rather than what is or isn’t in the bill itself . . . but then I think we have to include the doc fix as a cost of health care reform, because making it permanent is very clearly necessary to its passage, and furthermore (IMHO), would not likely be happening without PPACA–if they didn’t have to buy off the doctors, they’d be doing it on a temporary basis, rather than scrambling to find the money for a permanent fix.  So I don’t think this logic actually improves my opinion of the bill’s costs.

And even if we did throw both out, we’ve still got another $30 billion of unexpected spending, not two months after the bill was passed.  We’ve got companies doing exactly what we were promised they wouldn’t:  exploring the option of throwing their workers into the individual markets, at great cost to the rest of us.  We’ve got state insurance commissioners essentially commanding insurance companies to sell at a loss.

It’s not that one expects the projections to be perfect.  But imperfect projections are supposed to have random error–you get surprises to the upside, and surprises to the downside.  All these errors run one way.  Though it’s too early to tell, it makes me worry that the estimates might be biased–not in the way that we commonly use the word, which implies some sort of volitional, usually explicitly political thumb on the scale, but simply in the statistical sense that the method used to do the estimates may systematically produce projections that are lower than the true value.

That wouldn’t necessarily make it a bad method, either–there are reasons that we often use police counts for crimes, even though we know that many crimes go unreported; it’s hard to estimate the incidence of unreported crimes, and so we use the easy-to-measure number in many contexts, even though we know it’s too low.  So I want to make it clear that I don’t think there’s anything obviously wrong with the way the CBO is doing things.  It’s just that the steady trickle of bad news makes me worried that there’s worse to come.


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