The Politics Don’t Add Up

Why health care reform will cost more than Congress and Obama say it will.

Max Baucus 

President Obama has said he will not sign a health care reform bill unless it’s paid for. If it doesn’t lower costs, he will suggest spending cuts to make sure the deficit doesn’t grow. That’s a promise he says he will keep. But what about future presidents and members of Congress?

The question is not exactly a hypothetical: Today’s rush to send money to seniors gives us a pretty good idea of the answer. For the first time since 1975, the Social Security Administration has announced, seniors will not receive an annual cost-of-living adjustment in their Social Security benefits. The move makes good policy sense—the formula used by the SSA shows the cost of living has not increased in the past year. But it’s also politically unpopular. That’s why members of Congress and the president are trying to give seniors more money.

When the Congressional Budget Office determined that the Senate finance committee’s health care legislation would not add to the deficit, reform supporters heralded the news. Further, said the CBO, the bill would meet another important Obama priority: It would start to chip away at long-term health care costs. Budget watchdogs were skeptical, though. Former CBO director Douglass Holtz-Eakin was even more so. “What they’re saying is: ‘Your fantasies add up. I could say to CBO: ‘Hi, I’d like to make 5 million a year and live in a 125-room mansion. Does it work?’ And CBO says ‘yes,’ but that isn’t going to happen.”

The former policy director for the McCain campaign, now with the Manhattan Institute, wasn’t quibbling with the CBO’s math. He just didn’t think future politicians would keep the promises the bill was holding them to. According to one proposal, for example, if health care savings don’t materialize in the coming years, automatic cuts in health care funding will kick in. Holtz-Eakin, not unreasonably, sees this as unlikely. Budget experts also worry that Congress will not reduce payments to providers as scheduled or follow through with planned Medicare cuts.

“There’s been discussion of taking behavioral economics into account when assessing health care reform,” says Marc Goldwein, policy director of the Committee for a Responsible Federal Budget. “We also have to take into account behavioral politics. Political history teaches us that it’s unlikely that there will be nominal cuts.”

If Congress faces pressure from voters or from powerful lobbies like doctors, it could buckle and pass legislation that gets around the law (as it has repeatedly in saving doctors from cuts in payments). It’s not so far-fetched: It’s happening right now with Social Security. Cost of living increases are meant to help seniors maintain purchasing power, not increase it. Deflation and other factors actually mean that seniors should get a negative COLA, but law prohibits the COLA from being less than zero.

So even holding the benefit steady means seniors will see a real increase in their payments. But that’s not good enough. Members of Congress have submitted bills to pass a COLA increase, and the president has endorsed a $250 payment to 57 million seniors. “It’s money we don’t have, spent on people who don’t need it for reasons that aren’t real,” says Goldwein.

Why is the $14 billion program likely to go forward? Despite the president’s desire to reduce the deficit, seniors are a powerful political force. They are a crucial voting bloc. They turn out in off-year elections, like the one scheduled for a year and a few weeks from now. And their support for health care reform has been weak, so its supporters—in the White House and in Congress—don’t want to risk ticking them off at this crucial moment.

The president and his aides say this payment is merely a one-time infusion and that the money has nothing to do with the lack of a COLA. The payment is a part of the stimulus package passed months ago.

Providing help just as the COLA news is being announced seems too convenient to chalk up to mere coincidence, however. There’s always a rationale handy when political pressure is applied. In a tight spot, Congress finds a way around the law. That’s likely to be as true about health care in the future as it is about Social Security in the present.