The fix is in

If there is one fiscal cliff-related issue as to which bipartisan consensus exists, it’s that Republicans and Democrats should at least agree get the “doc fix” done by the end of the year. Actually, a consensus seems also to exist that millions of middle class taxpayers shouldn’t be forced to pay the alternative minimum tax and that the inheritance tax exemption shouldn’t drop all the way to $1 million.

But let’s focus on the doc fix. Peter Suderman at Reason shows that, although the doc fix represents a relatively small part of the fiscal cliff, “in many ways it is the fiscal cliff in miniature.”

By the “doc fix,” we mean, in essence, an allegedly temporary mechanism by Congress grants doctors more in Medicare reimbursements than it provided for by permanent law. Years ago, Congress tied total spending on physician payments to inflation, with the hope of keeping physician spending from growing faster than the economy as a whole. But as the economy has slowed, doctors faced a cut in payments that would have caused them to opt out of Medicare.

So in 2003, Congress avoided a reimbursement cut by passing an override. This was supposed to be a temporary fix, but in each year since, Congress has done basically the same thing, either by freezing payments or by giving physicians a small increase (typically for one year).

With each override, of course, Medicare’s physician payment levels grow further and further from the trendline called for by the congressional formula. Thus, the cost of the fix increases. According to Suderman, last year’s one-year fix cost $18.5 billion, while this year’s is expected to cost about $25 billion. Estimates put the cost between $244 and $370 billion over the course of a decade. Naturally, the ever-rising cost means that, with each override, the chances of a permanent fix grow even harder.

Does this sound familiar?

Meanwhile, the Congressional Budget Office, assumes in its budget projections that the congressionally enacted payment schedule will prevail in the future. But, as a practical matter, the CBO knows that this schedule is dead and that the “temporary” doc fix is a permanent part of the landscape. Consequently, the long-term fiscal picture is made to look better than it really is, to the tune of hundreds of billions of dollars, just by virtue of this one fiction.

Does this sound familiar?

Suderman concludes:

The fiscal cliff exists in large part because of the confluence of a slew of these permanently temporary policies. They aren’t likely to go away. Should there be a deal to avert the fiscal cliff, it’s likely to simply extend many of these policies—including the doc fix itself—for another year or so.

Which means that come this time next year, we could be facing another fiscal cliff. Indeed, just as the doc fix has become a yearly congressional ritual with no end in sight, it may be that many of the temporary policies of the fiscal cliff become permanent fixtures on our policy calendar.

And if the doc fix is any guide, that will have deleterious effects on both the budget and the economy. It will provide a convenient way to hide long-term spending commitments inside repeat extensions of temporary policies. And it will result in nagging economic uncertainty as the private sector endlessly worries that this year just might be the fluke year that Congress won’t act like it normally does and make a deal. At the same time, it will have the larger effect of distracting Congress from fixing the budget’s real long term problems by focusing legislators’ attention on an infinite loop of short-term problems. It’ll be the doc fix for everything—and the fiscal cliff forever.

Via Reihan Salam.

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