Ezra Klein - The $900 billion mistake

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by Ezra Klein

Barack Obama has not given much in the way of specifics for health-care reform. Few policies have been nonnegotiable and virtually none have been dictated. The exception is a number that was neither nonnegotiable nor dictated, but was received on the Hill as if it was both, and has come to dominate the health-care reform process: $900 billion.

The number sprang from Obama's September speech laying out his own plan on health-care reform. "Add it all up," he said before a joint session of Congress, "and the plan I'm proposing will cost around $900 billion over 10 years." The plan he proposed, however, did not mention the price tag, and the president did not include any specifics about how that price tag was reached. Nor did the president's language actually set a hard ceiling. "Around $900 billion," when you're talking about internal modeling for a plan that the Congressional Budget Office hasn't seen, is not the same thing as a $900 billion limit.

This was not like Bill Clinton waving his pen and promising to veto any bill that did not reach universal coverage. But that's how it was understood on the Hill. "It made things complicated," sighed Rep. George Miller. "We were working off of one track and then we had to switch." The Senate isn't having an easier time of it. Reid's office is waiting for the Congressional Budget Office to return an official score of their health-care reform bill. If it's under $900 billion, they will move forward with it. If it's over $900 billion, they will revise it, and send it back to CBO for a new, and hopefully lower, score.

There are three questions here. The first is how the Obama administration came up with the $900 billion estimate. The second is why they included it in their speech, after so relentlessly avoiding specifics until that moment. And the third is why the Hill embraced it as a hard limit rather than a general proposal.

The answer to the first is a mixture of policy and politics. Health-care reform was embattled. The Gang of Six was breaking apart. There were those in both the White House and the Senate who wanted to radically scale back the ambitions of the bill. Amidst this, members of the White House's policy team managed to model a plan that they considered pretty good and that came in at about $900 billion -- a bit lower than what the House had proposed, but a bit higher than what the Senate Finance Committee was considering. Further, there didn't look to be support for revenues that reached much beyond $900 billion, at least in the Senate. This wasn't a new limit so much as an articulation of a boundary that already existed.

It was, they hoped, something of a political sweet spot. It calmed some moderates by showing that the White House was willing to push back on the ambitions of more liberal members of Congress and pleased some liberals by showing that the White House wasn't letting the chaos of August distract them from the need for an ambitious bill.

But once that number entered the process, it began guiding the process. Sources on the Hill aren't really clear how the sum transformed from an estimate of the president's plan to a hard limit for their plan. Few recall that the original language included the qualifier "around." Even so, the number stuck. It strengthened the hand of moderates in both chambers and allowed them to create a ceiling. It also seemed clear that if the White House was comfortable with $900 billion, then it wasn't going to fight to protect the spending in any bill that exceeded that cap, so there was no point in the liberals bothering to push the issue.

The problem is that the number, which was chosen at a point of political weakness for health-care reform and the Obama administration, is too low. Most experts think you need closer to $1.1 trillion for a truly affordable plan. Limiting yourself to $900 billion ensures that the subsidies won't be quite where you need them to be, and means that virtually every spare dollar has to be spent strengthening them. If you want to add $30 billion to the bill creating coordinated care teams across the country -- a project that could transform chronic care in this country and eventually save many times its start-up cost -- there's little budgetary flexibility even if you could find the revenue, because each dollar is in a zero-sum competition with each other dollar so the entire plan comes in under the limit.

The second problem is that it's not clear what the number includes. Obama's plan, for instance, didn't say a word about the Medicare payment fix, which will cost more than $200 billion, and which many commentators argue should be included in the cost of the plan (I don't agree with them, incidentally). It didn't include specific delivery system reforms. It didn't show its own modeling, so it's hard to say whether the subsidies it envisioned were sufficient, or whether CBO would score the proposal at a higher, or lower, cost.

The reason for this ambiguity is that the limit was never really a limit. It wasn't attached to a plan that was scored by the Congressional Budget Office. It didn't refer to an actual number, or define how big of a boundary was meant by the qualifier "around." It didn't specify what it included. But to the detriment of the bill, it has become a hard ceiling, reducing both the potential affordability of the legislation and the flexibility of Congress to add delivery system reforms that could save money or improve health in the long run. For that reason, Congress should go back to Obama's original speech and follow the president's original lead. A process working towards a bill that's "around $900 billion" is a lot better than a process that's arbitrarily decided to produce a bill under $900 billion.