Donald

CBO on the New HELP Bill

On Thursday evening, the Congressional Budget Office (CBO) released a preliminary analysis of the latest version of Title I of the Affordable Health Choices Act, commonly known as the HELP bill or the Kennedy bill (since it’s the product of the Senate Committee on Health, Education, Labor, and Pensions which Senator Kennedy chairs).

Based on a quick review, here are the top six things I think you should know about the cost estimate:

1. The analysis is preliminary. CBO and the Joint Committee on Taxation have not yet had time to analyze every provision in the bill, some provisions remain in flux, and new provisions may be added. Health policy continues to be a moving target.

2. The headline cost of the bill — about $600 billion over ten years — is significantly lower than the $1 trillion net cost of the previous version of the bill. The net costs declined because (i) the subsidies for coverage through health insurance exchanges are now smaller, (ii) employers would have to pay a penalty if they do not offer insurance to their workers, and (iii) it would be much harder for employees to get subsidies in the exchange if their employer offers health insurance.

Note: The new CBO tables cover Title I of the bill, which has a net budget cost of $597 billion. CBO had earlier scored other portions of the bill as costing $14 billion. As a result, you will hear some commentators using the $597 billion figure and others using $611 billion.

3. As usual, it’s important to unpack the headline cost into its constituent parts: the 10-year cost of expanding health insurance coverage in Title I is about $743 billion and a separate provision adds an additional $10 billion. That $753 billion cost is then partially offset by penalties on employers who don’t offer coverage to their workers ($52 billion), penalties on uninsured individuals ($36 billion), higher income and payroll taxes ($10 billion), and the net premiums generated by a program (CLASS) to provide long-term care insurance ($58 billion). The income and payroll tax offset is much smaller than in the previous version of the bill because the current draft would have a much smaller impact on employer-provided health insurance.

4. The bill includes provisions for a public plan, but CBO concludes that these provisions would “not have a substantial effect on the cost or enrollment projections.” CBO reaches that conclusion because “the public plan would pay providers of health care at rates comparable to privately negotiated rates–and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges.” In short, the reduced cost of the bill is due to the factors outlined in the previous paragraph, not to the public plan.

Continue reading “CBO on the New HELP Bill”

A Grim Jobs Report

The headlines in today’s job report were gloomy:

Nonfarm payrolls fell by 467,000 in June, more than expected and more than in May.
The unemployment rate increased to 9.5%.

That gloominess is confirmed if you look deeper into the numbers. Most striking is the continued decline in the number of hours logged by private sector workers. The average workweek fell to 33.0 hours in June, the lowest since BLS began tracking the data in 1964.

The economy is thus losing jobs and, for the jobs that remain, is losing hours worked. That double whammy is bad news for the economy.

The following chart shows year-over-year changes in BLS’s index of total private sector hours worked (by production and nonsupervisory workers, who make up the bulk of the workforce). This index is useful because it captures both the number of jobs and the number of hours worked:

AWHI - June - 2009

As you can see, the recent decline in private hours worked is sharper than any in the past forty years. Over the past twelve months, total private hours have declined by 7%.

A closely related issue is the rise in part-time employment for economic reasons. Continue reading “A Grim Jobs Report”

Big Money in Cap-and-Trade

On Friday, the House of Representatives passed its climate change bill by a slim margin. The bill’s key feature is a cap-and-trade system for greenhouse gases. That system would set national emission limits and would require affected emitters to own permits (called allowances) to cover their emissions.

The number one thing you should know about this bill is that the allowances are worth big money: almost $1 trillion over the next decade, according to the Congressional Budget Office, and more in subsequent decades.

There are many good things the government could do with that kind of money. Perhaps reduce out-of-control deficits? Or pay for expanding health coverage? Or maybe, as many economists have suggested, reduce payroll taxes and corporate income taxes to offset the macroeconomic costs of limiting greenhouse gases?

Choosing among those options would be a worthy policy debate. Except for one thing: the House bill would give away most of the allowances for free. And it spends virtually all the revenue that comes from allowance auctions.

As a result, the budget hawks, health expanders, and pro-growth forces have only crumbs to bargain over. From a budgeteer’s perspective, the House bill is a disaster.

The following table illustrates how much revenue the bill would raise and compares it to the alternative of auctioning all the allowances:

Continue reading “Big Money in Cap-and-Trade”

Paying for Health Reform III

Last week I published two posts expressing concern about how Congress might pay for proposed health reforms. The first post argued that policymakers should focus on the trajectory of new spending and offsets, not just the cumulative 10-year budget scores. The second post expressed concern that the offsets used to pay for health reform may include policies that otherwise would have been used to reduce our out-of-control deficits; as a result health reform that appears to be “paid for” could nonetheless worsen our long-run budget trajectory.

Needless to say, these issues are receiving lots of attention around the budgeting parts of the Web. Some important contributions include:

Over at EconomistMom, Diane Lim Rogers elaborates on the challenge of paying for health reform. Diane even boldly suggests — not to endorse, but to make a key point about budgeting –that the most effective way of offsetting new health spending might be to not do it.

Over at the eponymous KeithHennessey.com, Keith Hennessey points out something I missed. In a Financial Times piece on June 22, OMB Director Peter Orszag suggested that paying for health reform over a 10-year budget window isn’t enough for budget neutrality. That’s exactly the point I made in my first post. Peter then sets out a second requirement: that health care reform must be “deficit neutral in the 10th year alone.” This is a good step, since it would rule out some trajectories of spending that would obviously worsen the long-run deficit. As Keith points out, this requirement isn’t sufficient by itself: you need to worry about the entire trajectory of spending and offsets, not just a single year. Nonetheless, it is a very good sign that the Administration is pointing out the limitations of 10-year budget scores.

The Committee for a Responsible Federal Budget is publishing a series of papers on paying for health reform. Their June 18 release includes a quite comprehensive list of potential policy changes that could be used as health “pay fors.“

Stimulus Lifts Government Transfers

A few weeks ago, I posted some charts showing that Americans are increasingly reliant on government transfers as a source of income. Friday’s data on personal income for May confirmed that the trend is continuing. Government transfers made up a record 18% of personal income in May:

In interpreting this increase, it’s important to keep several points in mind:

May’s increase was driven entirely by the recent stimulus act. The act provided for one-time payments of $250 to a range of Americans who are beneficiaries of various other programs, including Social Security, SSI, and veterans’ benefits. Those payments more than account for the increase in transfers from 16.9% of personal income in April to 18.0% in May. Continue reading “Stimulus Lifts Government Transfers”

Progress on Auctioning TARP Warrants

Ten major banks repaid almost $70 billion to TARP in recent weeks. But they aren’t free from TARP just yet: Treasury still owns warrants to purchase their common stock.

I’ve previously argued that Treasury ought to auction these warrants to the highest bidder. Auctions would (a) be transparent, (b) provide full, fair value to taxpayers, (c) free banks from the TARP, and (d) give banks the opportunity, but not the requirement, to repurchase the warrants. As close to a win-win-win policy as one can hope for in Washington.

Unfortunately, as I noted in a follow-up post, the original TARP investment contracts include a specific process by which banks can negotiate to repurchase the warrants. As much as I like auctions, I believe even more strongly that the government should live up to its agreements. Which is why you haven’t seen me blogging about warrant auctions lately.

Until now.

Earlier today, Treasury announced the process by which it will divest itself of the warrants of banks that have repaid their original TARP investments. This announcement includes lots of good news: Continue reading “Progress on Auctioning TARP Warrants”

The Subsidies in TARP

How much is TARP costing American taxpayers? We know that Congress originally authorized up to $700 billion in TARP investments. And we know that $439 billion has been committed to various programs. But how much of that money are taxpayers likely to see again? And to what extent will they be compensated for making those investments?

The Congressional Budget Office took a crack at answering those questions in a report released last night. The headline finding is CBO’s estimate that subsidies in the TARP program are $159 billion. Taxpayers put up $439 billion and, in return, now own assets (including recent repayments) worth $280 billion.

The following chart shows the estimated value of the TARP portfolio (dark red) and subsidies (light red) across the major TARP programs:

Key insights from the chart: Continue reading “The Subsidies in TARP”

Catherine Zeta-Jones & Consumer Finance

Catherine Zeta-Jones has an important message for policymakers who want to help consumers make better financial decisions.

Really.

Let’s go to the video:

I should emphasize that the message is not that economists are bow-tie-wearing geeks who should be sprayed with garden hoses. That may be true, but it isn’t CZJ’s message to policymakers.

No, the special message of the T-Mobile ad is that … Continue reading “Catherine Zeta-Jones & Consumer Finance”

Health is an R&D Problem

Our health care system is notoriously inefficient. Spending is too high, while quality is too low. Some patients undergo expensive treatments that provide little or no benefit. At the same time, other patients don’t receive some inexpensive treatments that could materially improve their health.

When I was CFO of a medical software start-up back in 2000, we diagnosed this problem quite simply: actual medical practice falls far short of best practices. Good treatment regimes are often well-known, yet are overlooked by a large fraction of practicing physicians. (The classic example at the time was that doctors were substantially under-prescribing beta blockers, which can help many patients after a heart attack; I would welcome comments about whether that’s still true.)

The implied treatment for our health care system is also simple: find ways to get patients, physicians, and other providers to adopt best practices. We were focused on information technology as one potential way to do this, but many others have also gotten attention, including:

Continue reading “Health is an R&D Problem”