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Brooks Wilson's Economics Blog: Mankiw on the Baucus Health Care Proposal

Thursday, September 17, 2009

Mankiw on the Baucus Health Care Proposal

Senator Baucus, the chairman of the Senate Finance Committee has introduced legislation titled, "America's Healthy Future Act," to reform health care. The CBO has done a quick analysis and has determined that

[T]he Chairman’s proposal would reduce the federal deficit by $16 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law, with a total effect during that decade that is in a broad range around one-half percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.

Mankiw doubts that the plan will remain unchanged and tells the following story to illustrate his concern.

Your friend Joe, who says he want to lose weight, asks you for an extra slice of pie after dinner. Naturally, you are doubtful about the wisdom of the request.

"Ahem, Joe," you whisper, "Aren't there a lot of calories in that?"

"Yes," he says, "but the pie is part of a larger plan. I am committed not only to eating that slice of pie but also to going to the gym every day for the next week and spending at least half a hour on the treadmill. The exercise will more than work off those extra calories."

"But that's what you said last week, when you asked for an extra piece of cake. And you never made it to the gym."

"Yes, I know," Joe replies ruefully, "but this time I really mean it....Can you please pass the pie?"

One day after Mankiw's comments, Lisa Mascaro of the Las Vegas Sun (HT Drudge) reports that Senate Majority Leader Harry Reid has determined that the legislation was not good for Nevada, meaning that the costs were too high, and that he would not vote for a bill that was bad for Nevada. Senator Baucus was quick to agree to changes that would decrease the cost of the legislation for Nevada. Baucus will have to buy off more Senators.

Senate Majority Leader Harry Reid said it's [the bill] not good enough for Nevada.

Reid is concerned about the cash-poor state's inability to boost Medicaid spending as would be required under the bill...

Reid said he received assurance from the chairman, Sen. Max Baucus of Montana, that the formula would be changed before the bill goes to committee next week.

"I spoke to the Chair of the Finance Committee and he assured me that this bill will be improved for Nevada," Reid said.

"Let me be very clear, I will not bring a health insurance reform bill to the Senate floor that is not good for Nevada.”...

The majority leader's objection show just how difficult the task before Congress in trying to meet the needs of all lawmakers who have problems with the legislation.

The CBO and Mankiw make a direct hit.

The bill also limits government provided health care to American citizens much the same way that current law limits employment to American citizens or those with green cards.

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