CBO on the Baucus Plan

The CBO blog on the health plan du jour:

the Chairman’s proposal would reduce the federal deficit by $16 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law, with a total effect during that decade that is in a broad range around one-half percent of GDP....

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairman’s proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

In other words, the plan would reduce the deficit if it were carried out as written, but there is good reason based on historical experience to be skeptical that it would be.

Let me try to put CBO's point in a more familiar setting:

Your friend Joe, who says he wants to lose weight, asks you for an extra slice of pie after dinner. Naturally, you are doubtful about the wisdom of the request.

"Ahem, Joe," you whisper, "Aren't there a lot of calories in that?"

"Yes," he says, "but the pie is part of a larger plan. I am committed not only to eating that slice of pie but also to going to the gym every day for the next week and spending at least half a hour on the treadmill. The exercise will more than work off those extra calories."

"But that's what you said last week, when you asked for an extra piece of cake. And you never made it to the gym."

"Yes, I know," Joe replies ruefully, "but this time I really mean it....Can you please pass the pie?"