Health-care reform cuts the deficit. Not!
Health-care reform raises federal spending over the next 10 years. But because the law also raises taxes, it trims the deficit.
House Majority Leader Eric Cantor of Virginia (center) speaks during a news conference on Capitol Hill in Washington, Jan. 19, 2011, to discuss the upcoming vote to repeal the health-care reform bill. From left are GOP Reps Nan Hayworth of New York, Cathy McMorris Rodgers of Washington, Mr. Cantor, House Majority Whip Kevin McCarthy of California, and Jeb Hensarling of Texas.
Alex Brandon/AP
Greg Mankiw set off a vigorous discussion in the blogosphere (see, e.g., Ezra Klein, Clive Crook, and the Austin Frakt) with a provocative analogy about health care reform:
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Donald B. Marron is director of the Urban-Brookings Tax Policy Center. He previously served as a member of the President's Council of Economic Advisers and as acting director of the Congressional Budget Office.
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I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.
Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.
I read Greg as raising an important rhetorical / pedagogic question which, judging by some responses, may have been overshadowed by his satire.
That simple question is “what is health care reform?”
The policy community and commentariat often equate health care reform with the legislation (actually two pieces of legislation) that President Obama signed into law last year. As everyone knows, the Congressional Budget Office estimated that those two laws would, if fully implemented, reduce the federal budget deficit by $143 billion from 2010-2019. That’s the basis for the claim that “health care reform would reduce the deficit over the next ten years.” (CBO also discussed what would happen in later years, where the law, if allowed to execute fully, would have a bigger effect, but let’s leave that to the side right now.)
The complication, which Greg’s post partly addresses, is that the health care reform legislation included many provisions. Greg notes, for example, that some expanded health insurance, while others raised taxes. In his view, only the first part constitutes health care reform — an effort that by itself would widen the deficit — while the tax increases are what made the legislation deficit-reducing.
In fact, it’s more complicated than that. By my count, the two pieces of health care reform legislation combined seven different sets of provisions:
1. Expanding health insurance coverage (e.g., by creating exchanges and subsidies and expanding Medicaid)
2. Expanding federal payments for and provision of health care services (e.g., reducing the “doughnut hole” in the Medicare drug benefit)
3. Cuts to federal payments for and provision of health care services (e.g., cuts to Medicare Advantage and some Medicare payment rates)
4. Tax increases related to insurance coverage (e.g., the excise tax on “Cadillac” health plans)
5. Tax increases not related to insurance coverage (e.g., the new tax on investment income)
6. The CLASS Act, which created an insurance program for long-term care
7. Reform of federal subsidies for student loans
(The House Republicans’ effort to repeal health care reform would overturn 1-6, but leave the student loan changes in place.)
To capture these complexities, I occasionally refer to the legislation as the health care / tax / student loan / long-term care legislation. But whenever I write that for publication, my editors take it out. Although my lengthy description is accurate, it doesn’t work for friendly conversation. So the law (which again, was really two laws) gets called the health care reform law.
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