The Baucus Masterpiece

Barack Obama owes Max Baucus one giant kiss, or maybe some bridges to nowhere in Montana.  Everything changed on October 7, 2009.  We now have a health reform plan that the Congressional Budget Office says would reduce the deficit and significantly reduce the rolls of the uninsured.

This will pass.  In fact, expect it to pass at about the same time the recession is said to have ended.  By November, Obama's approval ratings will be back in the 60s.  And Saturday Night Live will get back to making fun of Republicans exclusively, without the burden of being fact checked.

Back when the only thing we could call "Obamacare" was the House plan, the "Affordable Health Choices Act", it was easy to criticize health reform.  In its June 15 assessment of that legislation, the CBO said,

"enacting the proposal would result in a net increase in the federal budget deficits of about $1.0 trillion over the 2010-2019 period... the net decrease in the number of people uninsured would be about 16 million." 

So "Obamacare" at that time would cost a trillion dollars and leave 36 million uninsured.  All but a non-starter for anyone not simply carrying water for the Communist Party.  As a result, reform started suffering in the polls

But on October 7 the CBO released its analysis of the "America's Healthy Future Act" coming from the Senate Finance Committee chaired by Max Baucus. The CBO said it would reduce the 2010-2019 deficits by $81 billion and insure 29 more million people.  In fact, by 2015 it would cover 94% of the non-elderly population who are not "unauthorized immigrants," versus the 83% covered today.  What's more, the CBO estimated that it would continue to reduce the deficit beyond 2019 "in the broad range between one-quarter percent and one-half percent of GDP."

And the Senate took out the "public option" and replaced it, sort of, with cooperatives.  Per the CBO, "The proposed co-ops had very little effect on the estimates... they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments."

Defeating this new "Obamacare" is no longer a no-brainer.  It would mean health insurance for almost everyone.  It would reduce federal deficits, both short term and long.  And it doesn't have a "public option".  At the sound-bite level, it is unassailable.

Here is how the arithmetic breaks down over the 2010-2019 period, according to the CBO.  Additions to the deficit:

  • Subsidies for the new "insurance exchanges":  $461 billion.
  • More people covered by Medicaid or CHIP: $345 billion.
  • Tax credits for small employers: $23 billion.
  • Total:  $829 billion.

Reductions to the deficit:

  • Reduced payment rates to Medicare, Medicaid and CHIP: $404.
  • Tax on high-deductible insurance plans: $201 billion.
  • Penalties paid by employers: $23 billion.
  • Penalties paid by the uninsured: $4 billion.
  •  "Other budgetary effects, mostly on tax revenues": $83 billion.
  •  "Other provisions... that would increase revenues":  $196 billion.
  • Total:  $911 billion.

Those numbers give a net deficit reduction of $82 billion over 10 years, a round-off error away from the $81 billion claimed.  While the CBO gave a fairly detailed breakdown of that $404 billion in Medicare/Medicaid/CHIP cuts, I could not find in its 27-page analysis where about $280 billion of new revenue would come from.

Arguments against this plan are valid, but hard sells.  First, you can say you don't trust the numbers.  I don't.  But be my guest as you try to convince the average American that the CBO is wrong.  Especially when we conservatives used CBO estimates against the Affordable Health Choices Act  and Obama's budget

You can say that it would reduce the deficit only by raising taxes.  That is correct, but it does so in largely invisible ways.  No changes in income tax rates on either individuals or corporations.  It would be a conglomeration of fees, penalties and excise taxes.  I'll let you describe the unfairness of having to pay a few cents more for a sweetened beverage so that health insurance can be provided to 29 million more people.

You can say that it would reduce the deficit by cutting Medicare payment rates.  That would be correct, but those cuts would only hurt old people and their doctors.  Yet the Association for the Advancement of Retired Persons (representing old people, supposedly) and the American Medical Association (representing doctors, supposedly) would be arguing against you.

In short, this is going to pass.  It appears that Max Baucus took the list of 115 options the CBO had prepared last year, and mixed and matched them until he got something that would (1) insure a whole lot more people, (2) reduce future deficits at least a little bit, at least on paper, (3) avoid a cloture-proof filibuster in the Senate by removing the "public option", and (4) be passed by today's Congress and signed by Obama.  He really does deserve something for that feat.

For Obama, this would be health care promises made and promises kept.  More people covered.  No increase in deficits.  Passed in his first year.  Read it and weep, Republicans.

Does that mean this is a good plan?  No.  The CBO is lousy at estimating the effects of incentives on behavior, and thus underestimates costs and overestimates revenues.  Also, the CBO made no attempt at all to estimate the costs of this plan on the whole economy, only the costs to the federal government.  I believe this plan would add significantly to federal deficits.  Additional costs would be passed on to states, private providers and individuals, both in the health sector and outside it.

The plan would do little to get health care inflation under control.  Whatever you think the cost drivers are -- malpractice insurance and defensive medicine, inefficient bureaucracy, distorted incentives, etc. -- this plan does little or nothing to address.  It simply assumes Medicare/Medicaid/CHIP cuts will be made and borne somehow.

When all is said and done, the federal government will have a bigger role in funding and making the rules for health care in the country.  Our debt will continue on its unsustainable path.   The whole thing will probably have to be "fixed" again in another 10 years, if we make it that far.  In the meantime, incentives for health care providers and innovators will be reduced, leaving us with declining quality of care in the years to come.

Oh, and it's unconstitutional.  At least in any original-intent, plain-reading sense of the Constitution.  Then again, almost everything else the federal government does is too.

But my complaints are too hard to explain and too "ideological" sounding.  Heck, if we can't convince Bob Dole, what hope do we have of convincing a public already disposed to trust Democrats more than Republicans in this area?  This is the very type of issue, and the very type of legislation, that Americans voted for in 2008, like it or not.

Pretty soon the estimate of third quarter GDP growth with be announced, and it will probably be positive.  Industrial production and retail sales are already up.  Expect the NBER to announce the "end of the recession" soon, regardless of unemployment, considered a lagging indicator.  As winter sets in, coalition deaths in Afghanistan will likely decrease.

In short, Obama's annus horribilus will turn out to be only a few months long, peaking with the loss of the 2016 Olympics.  Pretty soon Obama will be able to claim both an economic recovery and health care reform, and SNL will be forced to put some marks in its left-hand column.  Given that Obama has about a 50% approval rating right now, expect it to reach into the 60s in the next month or two.

Then again, it's possible that Pelosi, Reid and the other nutcases will so deface Baucus's masterpiece that Republicans will pick up impressive numbers in 2010.  I have been unable to overestimate Pelosi's stupidity so far.

[editor: see the New York Post's critique of the Bauchus CBO numbers: "Too bad the numbers come from books so well-cooked they'd make Julia Child blush."]

Randall Hoven can be contacted at or  via his web site,
If you experience technical problems, please write to