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How to Get Around Bad CBO Scores

With all the focus on a  handful of high-profile items, many important features in the House and Senate health reform proposals are being overlooked. And some of these neglected items bear on the fiscal soundness of whatever reform is eventually adopted.

Consider the proposed new federal long-term care program (the “CLASS Act”), which is included in both the House and Senate HELP Committee bills but not in the Finance Committee’s version. Enrollment in the program would be voluntary and open to all active workers and their spouses. In return for monthly premiums, enrollees would be guaranteed cash payments if they become unable to perform certain basic activities—such as feeding and dressing themselves--without assistance. Enrollees would have to pay premiums for a minimum of five years, after which benefits would be paid out of a trust fund consisting of accumulated premiums plus interest earned on its balances. The proposed legislation would give the HHS secretary wide latitude to adjust premiums and benefits to ensure solvency over time.

So far, this sounds like an insurance program, albeit one run by the federal government. But there’s a catch. In a July 6 letter to Senator Kay Hagan, CBO director Douglas Elmendorf estimates that “the proposal’s net effect on the federal budget would be to reduce the budget deficit by about $58 billion during the 2010-2019 period.” And he explains why: “The estimated reduction in the federal budget deficit over the next 10 years is chiefly the result of the five-year vesting requirement; the payout of benefits would not begin until 2016, five years after the initial enrollment in 2011.”

In a normal insurance program, the fund created by accumulating premiums is set aside as a reserve against future claims by beneficiaries. Technically, the HELP Committee’s bill does establish such as fund, often called a “lockbox.” But here’s the catch: the CLASS Act savings as scored by the CBO are counted against the costs of the overall health reform effort. There are only two possibilities. If the funds are really sequestered for long-term care, then the rest of health reform is underfunded by $58 billion over the next decade. If the funds are not sequestered and are in effect used to finance the overall reform package, then the CLASS Act is underfunded by $58 billion, mostly in the decade after that. You can’t spend the same money twice. So in either event, the government would have to find the money someplace else or allow the deficit to increase by an additional $58 billion.

This may strike some readers as a detail, or worse, as a diversion. I don’t think so. We’re already facing an unsustainable fiscal future. The least we can do is to honor the political version of the Hippocratic oath and do no harm. That’s what President Obama has promised. Serious legislators shouldn’t use accounting tricks—such as pushing deficits outside CBO’s scoring windows--to sidestep this pledge.

There are signs that the appeal of such tricks is growing rapidly as Congress begins to focus on the real cost of fiscal integrity. Senate Majority Leader Harry Reid has apparently decided to address the issue of Medicare physician reimbursement--a $247 billion item--outside of health reform and without paying for it. And just today, Al Hunt floated the idea of including the CLASS Act in the final health legislation, largely on the grounds that it raises revenue that could be used to pay for reform. All this while the dollar is in free-fall and foreign countries are beginning to discuss ways of ending its role as the world’s reserve currency.

Health reform is important, but so is the long-term health of the U.S. economy. President Obama’s official position is just right: no reform is acceptable that digs our fiscal hole even deeper. Between now and the end of the year, we’ll find out whether he means it.