Will the Long-Term Budget Situation of the Federal Government Be Improved from Health Care Reform Bill?

March 18, 2010

Most Democrats and other supporters of the health care bill say yes as CBO has scored the bill to reduce the deficit over the next ten years, as well as in the ten years after that. But let's look at this from a more realistic perspective. CBO has certain baseline rules that it follows, which are not necessarily based upon a "most likely" scenario.

Passing nearly a trillion dollars in new spending (over the first ten years), by itself, adds to the long-term debt of the U.S. However, the bill reduces the long-term budget debt relative to the current baseline because it supposedly cuts Medicare and increases tax revenues. But these spending cuts and increased tax revenues that reduce the debt aren't completely tied to the spending items. For example, the cuts to Medicare that have been proposed could reduce the debt even without a health care overhaul. The same is true for many of the tax hikes in the bill.

If there is some sufficient probability that these debt-lowering provisions (e.g. cuts to Medicare and certain tax hikes) would have been used eventually to solve the long-term debt problem facing the federal government, then using them to finance new health care spending may indeed worsen the long-term budget situation of the federal government. Going the other way, however, is if this new health care spending actually substitutes for even larger future health care spending that would have otherwise occurred or if packaging those debt-reduction items with health care was the only way to get them through.

In summary, the CBO calculation does tell us that relative to the CBO baseline, the federal government's future fiscal situation will be better served by this bill. However, who is to say that the CBO baseline is the proper benchmark of what would have otherwise happened down the road had this bill not passed?


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