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The Quiet Energy Revolution

By Max Schulz 02/04/2010
Obama Budget Rigs Healthcare Numbers How ironic that during the ‘drill, baby, drill’ 
demonstrations as gasoline prices spiked
in 2007 ...
By Andrew G. Biggs
Friday, February 5, 2010 The Limits of Blaming Bush
Filed under: Government & Politics, Economic Policy, Health & Medicine By Veronique de Rugy 02/06/2010
In his latest budget request, President
For the first time by any administration in memory, the Obama budget forecast rejects the Medicare Trustees’ projections Obama added roughly $1.6 trillion in
for long-run healthcare cost growth. Why would the White House do this? spending over the next ...

The Obama administration’s fiscal year 2011 budget continues a Obama Budget Rigs Healthcare Numbers
By Andrew G. Biggs 02/05/2010
pattern of ignoring independent analysis and rigging economic
For the first time by any administration in
assumptions to meet political goals. For the first time by any memory, the Obama budget forecast
administration in memory, the Obama budget forecast rejects the rejects the Medicare ...
Medicare Trustees’ projections for long-run healthcare cost growth. The War Against Suburbia
The reason: the Trustees’ projections undercut the administration’s By Joel Kotkin 01/21/2010
narrative that increased federal control over private sector healthcare A year into the Obama administration,
could painlessly reduce Medicare and Medicaid costs. The Obama America’s dominant geography, suburbia,
is now in open revolt ...
budget instead assumes long-term health cost growth at twice the
rate projected by the Trustees. Our Chemophobia Conundrum
By Seymour Garte, Ph.D. 02/02/2010
The White House’s assumptions are factually implausible. Worse, The false idea that our bodies have
become ‘toxic waste dumps’ is not just
they threaten to politicize the Social Security and Medicare Trustees, whose process for estimating entitlement costs has until
wrong but ...
now stood out for its lack of political influence.

The budget’s long-term analysis projects Social Security, Medicare, and Ignoring independent analysis is
Medicaid spending over 75 years. While past administrations have a pattern for the Obama
sometimes used their own productivity and interest rate assumptions, administration.
Shooting the Messenger: CBO in the
these changes generally have only minor effects. But all past Crosshairs
administrations, and even the Obama administration in its fiscal year 2010 budget, adopted the Social Security and Medicare The official scorekeeper for health reform
Trustees’ baseline program-specific assumptions, including the rate of healthcare cost growth. legislation in Congress has stated that the
overhaul proposed by the administration
These Trustees’ assumptions are generated in a process deliberately insulated from politics. While cabinet members make could increase costs. What to do? Shoot
up four of the six Medicare and Social Security Trustees, White House staff do not attend meetings of the Trustees working the messenger.

group and have no say regarding economic or demographic variables. During my time at the Social Security Administration I How Different Is Grandma’s Spending?
never saw politics influence how assumptions were chosen. The inflation seniors experience is far more
similar to that felt by other Americans than it
The rate of health cost growth per beneficiary combines with population aging, which swells the number of beneficiaries, to is different.

raise overall Social Security, Medicare, and Medicaid spending. The Medicare Trustees have for years projected that per capita Obama’s Truly Exceptional Budget and
health costs will grow around 1 percent faster than gross domestic product. In health experts’ lexicon, “excess cost growth”  Tax Plans
Since at least the Kennedy administration,
will equal “GDP plus 1 percent.”
high economic growth has correlated with
lower budget deficits. As projected, the
The 2011 Obama budget, by contrast, assumes per capita health costs In the context of backing their Obama budget would be the exception to
will grow at GDP plus 2 percent, double the Trustees’ rate. The effects of political claims, these this rule.
this change are staggering: the administration’s 2010 budget, which assumptions allow the White
House to produce charts Why Reform Will Cost Taxpayers More,
followed the Trustees assumptions, projected Medicare costs of 9.6 Much More
seemingly backing the budget’s
percent of GDP by 2080. The 2011 budget, which uses White House Let’s look at some of our recent cost
claim that excess cost growth is
assumptions, projects Medicare will consume 22 percent of GDP by overruns in government-driven medical
‘the most important single factor spending.
2085. driving the long-run budget
outlook.’ The High Cost of No Price
To what possible purpose could these changes have been made? The A simple chart will help you understand why
answer lies in the administration’s case for increased federal control healthcare spending has gone out of
control.
over private-sector healthcare.
President Obama’s Binge Diet
Since coming into office, the administration has argued that “the deficit impact of every other fiscal policy variable is swamped The proposed budget freeze is akin to
by the impact of health-care costs,” as Obama budget director Peter Orszag wrote in the Wall Street Journal last year. Excess skipping dessert after binging at an all-you-
cost growth, Orszag argued, is the real deficit threat. The administration similarly downplays the role of population aging. can-eat buffet, and still hoping to lose
weight.
But this debate isn’t merely academic. The administration claims that rising costs for Medicare and Medicaid originate in the
private health sector. The best way to reform Medicare and Medicaid, Health and Human Services Secretary Kathleen
Sebelius has said, is to “fix what’s broken” in the rest of the healthcare system. The president flatly states, “healthcare reform
is entitlement reform.”
They’re wrong. As I and other critics have shown, population aging is by far the biggest contributor to entitlement spending
over the next several decades and will be the principal cost driver through the mid-2050s. Partly as a result of these analyses,
Orszag’s successor at the Congressional Budget Office, Douglas Elmendorf, altered the agency’s presentations to more
accurately reflect aging’s role.

In other words, even if healthcare overhaul managed to “bend the cost curve” and reduce per-capita health spending, the
 
surge of retirees collecting Medicare, Medicaid, and Social Security benefits would still push government spending ever
upwards. Thus, the facts undermine the administration’s argument for greater regulation over private-sector healthcare.

Seen in isolation, assuming health cost growth of GDP plus 2 percent seems bizarre. An expert panel assembled by
Medicare declared that 2 percent excess cost growth was “implausibly large,” as it implied total private and public health
expenditures swallowing the vast majority of GDP. Orszag himself testified before Congress that simple extrapolations of
historical cost trends have “significant shortcomings” and that “even in the absence of changes in federal law, spending
growth would probably slow eventually.” A number of economic studies that modeled demand for healthcare concluded that
long-term costs could grow even more slowly than Medicare currently projects. The White House clearly seems on the wrong
side of expert opinion.

But in the context of backing their political claims, these assumptions allow the White House to produce charts seemingly
backing the budget’s claim that excess cost growth is “the most important single factor driving the long-run budget outlook.” In
short, it is an assumption of political convenience.

Ignoring independent analysis is a pattern for the Obama administration. During the healthcare debate, Medicare’s actuaries
produced an analysis showing that congressional health plans would increase rather than decrease national health
expenditures. The White House rejected the actuaries’ study and had the White House Council of Economic Advisors issue
its own memo claiming that reform would “bend the cost curve.” Likewise, bright minds within the Office of Management and
Budget surely thought that if the Medicare Trustees’ projections didn’t suit their needs they would simply generate their own.

Policy initiatives come and go, and the Obama administration’s healthcare overhaul may already have petered out. But as the
Medicare Trustees work on the next report, there will be implicit pressure to produce assumptions that mirror those generated
within the White House. Without such a change, the new White House baseline stands out like a sore thumb. But a process
once corrupted isn’t easily purified.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute. From 2008–2009 he served as principal
deputy commissioner of the Social Security Administration and as secretary of the Social Security Board of Trustees.

FURTHER READING: Biggs wrote about similar attempts in “Shooting the Messenger: CBO In the Crosshairs” and
“Senate Obamacare Bill Depends on Enron Accounting for ‘Savings.’” He also answers the question, “Why Is There So
Much Waste in U.S. Healthcare?” Veronique de Rugy explains “The High Cost of No Price” for healthcare spending, while
Dustin Chambers details “What Is Driving Rising Healthcare Costs?”
Image by Darren Wamboldt/Bergman Group.
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