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Cue Ominous Music?

As readers of this space know, last week I reported that initial CBO estimates led House reform architects to believe savings from the public isurance option would be in the neighborhood of $150 billion. I'm now hearing that, because of late changes to the bill, the number may come down. We'll see by how much. The CBO estimates for enrollment in the public plan were a bit lower than some people were expecting, so that may have something to do with it. (Ezra Klein presciently warned about this last week.)

That's one story to watch in the next few days. Another? The total price tag of the House bill. Earlier this week, the Associated Press carried a story saying it was $1.5 billion. The story was by Erica Werner; its source was a House aide who requested anonymity.

The article has provoked an angry reaction, with House staffers saying the figure is wrong and that they don't know its origin. The "topline" sheets from the Congressional Budge Office, which House leaders released with their bill earlier this week, showed net outlays of just $1 trillion to pay for the coverage expansions in the program. Werner is standing by the story.

I'm not entirely sure what's going on here, even after some calls and e-mails Wednesday night. I do know that the ten-year cost of expanding coverage in the House plan--that is, the cost of expanding Medicaid and subsidizing private insurance--is indeed around $1 trillion. And that seems like the relevant figure to keep in mind.

On the other hand, Werner is a very good reporter. And while it's possible she or her source made a mistake--we all do, sometimes--I wouldn't be shocked to discover there's a semantic dispute here. It may turn out, for example, that if you break up the new outlays and new savings in Medicare, and combine the outlays with the cost of expanding coverage, money flowing out would technically go beyond $1 trillion.

The convention, I think, has been to those two and look only at the net change in Medicare spending. But perhaps that explains at least part, if not all, of the discrepancy. Again, I'm really not sure yet.

(Also worth watching: How much does it cost to fix the annual automatic adjustment in Medicare payments to physicians, or what's known as the Sustainable Growth Rate? That's an expensive item, but pay-go budget rules may not apply.)

None of those things, by the way, are what really have my main attention this morning. Rather, it's this sentence, which appeared in a letter that the CBO sent the ranking members of the Senate Budget Committee last month and which (thanks to a friend) I recently rediscovered:

An expansion of insurance coverage would be phased in over time to allow for the creation of new administrative structures such as insurance exchanges. As a result, the cost of an expansion during the 2010–2019 period could be a poor indicator of its ultimate cost.

As noted previously here and elsewhere, one reason the outlays for coverage in the House bill are just $1 trillion over the first ten years is that the plan doesn't really kick in until 2013. The annual cost, in other words, isn't $100 billion a year. It's closer to $150, once fully phased in.

That's fine. (Good coverage costs money!) The key question is whether the revenue and savings in the House plan, beyond ten years, are high enough to match these larger annual costs. Among other things, a revenue source pegged to income taxes will rise only as fast as incomes, which have historically risen--and will likely continue to rise--more slowly than medical costs.

This gets pretty complicated. (I know, it was complicated already...) Among other things, it involves whether the House bill includes "game-changing" system reforms President Obama and some of his allies keep talking up--and how much faith in them you (and the CBO) are willing to place. Of course, there's also an argument that the projections beyond ten years are so unreliable that it really doesn't make sense to get too worked up about them, as long as reform is moving generally in the direction of better cost control.

In any event, don't be surprised if the issue comes up and raises some legitimate concerns.

--Jonathan Cohn