From a budget perspective, the Baucus bill is a major step forward from the earlier HELP and House bills. There remains lots of room for improvement, and I am certainly not endorsing the bill at this point. But I do believe that Chairman Baucus and his team deserve credit for improvements on at least four important fronts: overall budget impact, doctor payment rates in Medicare, tax increases, and communications.
1. On paper, at least, the bill satisfies three key budget tests. It doesn't add to the deficit over the ten-year budget window, it doesn't add to the deficit in the tenth year of the window, and it doesn't add to the deficit in years beyond the window. Indeed, it appears to reduce the deficit over each of those periods.
As CBO hinted in its cost estimate and Greg Mankiw discusses on his blog, there are reasons to doubt whether some proposed spending reductions and tax increases would actually materialize. Thus, the actual budget effects may not be as rosy. That's a huge issue. But even with that caveat, the Baucus bill is a major improvement over proposals that didn't even try to hit these budget targets.
2. The bill increases physician payment rates in Medicare for only one year – and it pays for the resulting spending increases. Congress has repeatedly avoided cuts to physician payment rates in Medicare by raising rates for a year or two and then "paying for" the increased spending by scheduling even larger payment cuts in the future. After a decade of this game, the scheduled fee cuts have become ridiculous. If Congress doesn't act, payment rates will fall more than 20% at the end of the year.
In his budget, President Obama suggested that we address this problem by saying "just kidding". Physician payment rates wouldn't be cut, and instead would grow at a moderate pace in coming years. The House took a similar approach in its health bill, and the result was $245 billion in additional spending on the doctors without any offsets. In short, pure deficit spending.
Baucus is right to shun that approach. As a tactical matter, it's impossible for him to do otherwise. He doesn't have the offsets necessary to pay the $245 billion ten-year cost of a permanent fix, but he does have room to cover the $11 billion cost of a one-year fix. And offering a permanent fix without paying for it would have removed any plausibility about the future spending reductions and tax increases that he wants to use as pay-fors in his bill.
Doing a one-year fix also puts Baucus on the moral high ground in another way. Under the President's proposal and the earlier House bill, the $245 billion ten-year cost of a permanent fix looked uncomfortably like a bribe to get doctors to support the larger health bill.
