Sunday, March 21, 2010

Obama's Shell Game (part II)

If you don't believe Representative Ryan (R - WI) check out what CNN has to say about the shell game the Obama is playing to hide the true costs of his budget busting health care reform plan . To view the whole article scroll to the bottom of this post and click on the link. Otherwise check out these excerpts:

It's not an easy trick to reduce deficits and yet borrow more money. CBO does it because it has to. By law, the CBO is required to use "cash" or "unified budget" accounting. Under that system, the CBO projects all the new revenues and new expenses from the legislation it's requested to "score." If the extra revenues exceed the additional outlays, the bill is deemed to reduce deficits. That's the case with the health-care bill. The rub is that the measure gets a large portion of its revenues from new Social Security and Medicare taxes -- plus levies it collects upfront to pay for a long-term care entitlement program.

Counting those taxes as deficit reducers presents two problems. First, the extra revenues are mainly needed to pay for higher benefits in the future. Second, they cannot be used to fund the lavish subsidies, tax credits for small employers, and other spending the bill mandates. "The law is clear," says Donald Moran, a former Reagan Administration budget official who runs a Washington, DC-based health-care consulting and research firm. "Revenues from those entitlement taxes must go into their trust funds. That money is not available to pay for the spending commitments of the health-care bill."

So let's use the definition of "deficits" that most Americans follow in their own budgets: Any time you increase spending -- on buying a two-story colonial or taking a vacation at Club Med -- and you need to borrow to pay for it, you're running a deficit. For families, the best way to measure those deficits is the amount it adds to what they owe on their credit cards, car loans or home equity lines.

Now apply the same standards to the health-care bill. If it really reduces deficits, it should lower the federal debt. It does the opposite. How? First, it doesn't raise nearly enough revenues to pay for itself. Second, it vastly understates future costs.

Let's start with the second issue. A law dating from 1987 sets strict limits on total physician payments for Medicare. The main mechanism for restraining costs is a formula that lowers the fees Medicare pays for everything from angioplasties to checkups. But since 2002, Congress has been postponing those cuts and allowing modest increases in reimbursements instead. The official budget assumes that Congress made the cuts every year, and hence starts with a far lower spending number. But that's fiction. Each year, Congress passes what it calls the "Doc Fix," which today requires spending about $25 billion a year more than the budget projects.

The House included the "Doc Fix" in the bill it presented in July, but not the Senate. And now it's reappeared -- but in a different piece of legislation. The administration estimates that the Doc Fix will cost $371 billion over 10 years. Yet the CBO doesn't talk about that cost when it comes to health care -- because it can't. It's not in the bill it's scoring.

"The bill has many changes in Medicare, but this is the only one Obama wants to do separately," says James Capretta, who served in the Office of Management and Budget under President George W. Bush. "It's an attempt to hold the official cost below $1 trillion, when it's really far higher."

The White House is also counting on three sources of revenue that, in fact, cannot be used to pay for the bill's spending: A new entitlement, Social Security taxes, and higher Medicare levies. The new entitlement is the Community Living Assistance Services and Supports program, or CLASS Act. The CLASS Act is a long-term care plan for people who can't perform basic daily tasks such as feeding themselves. Over the next 10 years, the CLASS Act mainly collects payroll contributions from new enrollees, and pays only small amounts in benefits.

But the program needs all of that money to cover the costs it will accrue when those new enrollees start needing home-nursing services. In fact, it will almost certainly need a lot more. The American Academy of Actuaries warns that the program will be insolvent by 2021. The HHS actuaries conclude that it faces "significant risk of failure." In October, Kent Conrad, D-N.D., chairman of the Senate Budget Committee, called the CLASS Act "a Ponzi scheme of the first order, the kind of thing that Bernie Madoff would have been proud of."

But remember, the CBO counts new revenues, even if they're owed later for another purpose, towards "deficit reduction." Hence, using the CBO report, the administration is, in effect, touting the $70 billion the CLASS Act raises between 2010 and 2019 as money that's available to spend on subsidies for premiums and coverage for the uninsured.

So how much must the government borrow to pay for reform? That's the true measure of future deficits. Let's start with the CBO's "deficit reduction" estimate of $118 billion.

First, we'll subtract the Doc Fix of $371 billion, which Obama does not pay for and must be borrowed. That wipes out all of the theoretical decline in the deficit and leaves a shortfall of $253 billion.

Then we'll subtract the tax revenues that are owed for entitlements, and therefore excluded from paying for the bill: $70 billion from the CLASS Act, $52 billion for Social Security, and $113 billion for Medicare. That subtotal: $235 billion.

So the full amount that must be borrowed by 2019 is $488 billion. (That's 39% of the total cost, composed of the $875 billion official estimate plus the Doc Fix of $371 billion, for a total of $1.25 trillion.) Add in interest, which is excluded from the official CBO cost, and the total amount approaches $600 billion. So the U.S. will need to borrow an additional $600 billion to pay for a new medical system -- one that won't be up and running until 2014.

Only by using the crazy math of health care can a bill both "lower deficits" and enormously raise debt. America's struggling households know what real deficit reduction looks like, and this isn't it.

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