When Will We See Fiscally Responsible Health Reform from Congressional Republicans?

(A version of this Health Alert was published by RealClearPolicy on July 16, 2015.)

Just a few weeks ago, Republicans in Congress announced a oint budget resolution, which (if ever enacted) would repeal Obamacare and balance the budget in ten years. That is all well and good. Unfortunately, when they pass health care legislation that actually has a chance of becoming law, they fail to pay for their promises. How can they be trusted to repeal and replace Obamacare with fiscally responsible, patient-centered health reform?

The Congressional Budget Office (CBO) estimates repealing Obamacare would increase the deficit by $353 billion over ten years, before considering the economic growth that would result from repeal. Because repeal would grow the economy, federal tax revenues would increase by $216 billion, resulting in a net deficit of $137 billion. So, when Republicans actually repeal Obamacare, they will still have to cut $137 billion of spending elsewhere.

Yet, they cannot even identify miniscule spending cuts to pay for current health-related bills. The latest is repeal of the medical device excise tax. This is a 2.3 percent excise tax on medical devices – from pacemakers to MRI scanners – to help pay for Obamacare. On June 18, the House of Representatives voted to repeal the tax. Every Republican present voted for it, plus about one fifth of the Democrat members. With those 46 Democrats joining the majority, the votes in favor added up to 280, just eight short of the number needed to override the promised presidential veto. It awaits a vote in the Senate.

President Obama has promised to veto the bill because it is fiscally irresponsible. The Congressional Budget Office estimates that device tax repeal will increase the deficit by $24 billion in the next 10 years. Spending offsets? Zero. Nada. Zilch.

If there is a chance to get rid of any part of Obamacare, it should be dealt with at the earliest opportunity. So, by all means, Congress should eliminate this tax. And if it can get enough Democrat votes to override the president’s veto, better yet.

However, there is no excuse not to find spending offsets to ensure repeal does not increase the deficit. Indeed, it is easier now that it was a few years ago. CBO now figures the revenue from the tax will be much less than it estimated in 2010. Device makers have paid the tax on sales from January 1, 2013; and it is now clear the original revenue estimate was overly optimistic. The 2010 and 2015 estimates overlap four years, 2016 through 2019. Estimated revenues over that period have shrunk 36 percent, from $12.7 billion to $8.1 billion.

Repealing this tax without spending offsets does nothing to repeal Obamacare. It just gives us a deficit-financed Obamacare. This is the second time this year the Republican-majority Congress has voted to increase deficit spending on health care. In April, they jacked up Medicare spending on physicians’ fees – winning the praise of physician lobbyists. At least that time around, they found a few pennies on the dollar to pay for the increase. Still, the CBO estimates the so-called Medicare “doc fix” will add $141 billion to the cumulative 10-year deficit.

In the scheme of government spending, even health spending, these are small amounts. It is hard not to find spending offsets to find them. For 2016, the medical device tax repeal will cost the federal government just $1.8 billion of revenue, while it will spend over one trillion dollars on Medicare and Medicaid.

President Obama himself has proposed a way to cut Medicaid spending that should appeal to every conservative. In his February 2012 budget, the president proposed reforms to “provider taxes.” These are a trick used by hospitals and states to increase federal transfers. Hospitals agree to submit to a special “tax” by the state. However, this tax flows into the state Medicaid program, which uses it to get more federal dollars. So, hospitals actually increase their revenue by more than the “tax.” Stopping this abuse would save $22 billion over ten years. All Congress has to do is lift this right out of the president’s 2012 budget to cover almost all of the device tax repeal.

President Obama’s administration is not known for a commitment to fiscal discipline, but even he has had enough of Republicans’ fiscally reckless approach to health spending. It is long past time for Congressional Republicans to walk the talk on balancing the budget.

Comments (2)

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  1. Bart I says:

    “Repealing this tax without spending offsets does nothing to repeal Obamacare.”

    So the implication is that the offsets must come specifically in the form of reductions to Obamacare spending. I have no problem with that, but how to prioritize the possible targets?

    • Thank you but that is not the implications. In the text, I gave an example of cutting spending by limiting the ability of hospitals and states to conspire to levy so-called “provider taxes” to increase federal Medicaid payments. This has nothing to do with Obamacare itself. The problem existed many years before Obamacare was passed.

      I don’t really care where the offsets come from. Nevertheless, if Congress cannot cut spending when it cuts taxes, when will it cut spending?