CBO Scores - Does Health Reform Win?

The Congressional Budget Office has released their analysis of the costs and revenues attached to the Senate Finance Committee's Health Reform bill.

By the numbers:

29 million Additional insured (by 2019)
25 million Uninsured (by 2019)

94% Total non-elderly legal residents with health insurance
(up from 83%)
91% Total non-elderly residents with health insurance

13% Maximum % of income to be spent on health insurance

$345 billion Expansion of Medicaid and Children's Health Insurance
$461 billion Subsidies for Insurance
$ 23 billion Small Employer Tax credits
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$829 billion Gross 10 year cost of coverage provisions

($ 4) billion Penalty payments for uninsured individuals
($ 23) billion Penalty payments for employers
($201) billion Excise tax on high premium insurance plans
($ 83) billion Other effects on tax revenues and outlays
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$518 billion Net 10 year cost of coverage provisions

$599 billion Offsetting Medicare savings and increased tax revenues

($ 81) billion 10 year reduction in federal deficit

Senate Finance Committee will vote on the bill after Senator Olympia Snowe has had time to review the CBO analysis, likely by next week.

Preliminary Analysis of the Senate Finance Committee Chairman’s Mark As Amended

CBO and the staff of the Joint Committee on Taxation (JCT) have just issued a preliminary analysis of the Senate Finance Committee Chairman’s mark for the America’s Healthy Future Act of 2009, incorporating the amendments that have been adopted to date by the committee. That analysis reflects the specifications posted on the committee’s Web site on October 2, 2009, corrections posted on October 5, and additional clarifications provided by the staff of the committee through October 6. CBO and JCT’s analysis is preliminary in large part because the Chairman’s mark, as amended, has not yet been embodied in legislative language.

Among other things, the Chairman’s mark, as amended, would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance “exchanges” through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the Medicaid and Medicare programs and the federal tax code.

According to CBO and JCT’s assessment, enacting the Chairman’s mark, as amended, would result in a net reduction in federal budget deficits of $81 billion over the 2010–2019 period. The estimate includes a projected net cost of $518 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources. The net cost of the coverage expansions would be more than offset by the combination of other spending changes that CBO estimates would save $404 billion over the 10 years and other provisions that JCT and CBO estimate would increase federal revenues by $196 billion over the same period. In subsequent years, the collective effect of those provisions would probably be continued reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent. Roughly 23 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people either purchasing individual coverage outside the exchanges or obtaining coverage through employers would decline by several million.

Although CBO does not generally provide cost estimates beyond the 10 year budget projection period (2010 through 2019 currently), Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great. CBO has therefore developed a rough outlook for the decade following the 10-year budget window by grouping the elements of the proposal into broad categories and assessing the rate at which the budgetary impact of each of those broad categories is likely to increase over time.

All told, the proposal would reduce the federal deficit by $12 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 between one-quarter percent and 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. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented. (If those changes arose from future legislation, CBO would estimate their costs w

The Senate's Gang of Six Stays Inside for Recess

While the rest of the Senate left town for their August recess, six Senators stayed behind. The bi-partisan Senate Finance Committee negotiators are reported to be making progress on their healthcare reform plan.

Max Baucus, the Finance Committee Chair has given the negotiators a September 15 deadline for completing their work. And Chuck Schumer has weighed in that “If they can’t do it by Sept. 15th, I think the overwhelming view on the Democratic side is going to be, then, they’re never going to get it done... And there’s always a worry that, you know, delay, delay, delay, you lose any momentum whatsoever.”

Douglas Elmendorf, CBO Director, has testified that other healthcare legislation in Congress would raise costs. Before the House Ways & Means Committee, he said that "we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significiant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs." All of which raises the bar for the Senate negotiators to come up with a plan which bends the cost curve in the right direction.

Shailagh Murray and Lori Montgomery recently reported on the Senate negotiators' progress towards eventual coverage of 94 percent of Americans that "would expand Medicaid, crack down on insurers, abandon the government insurance option that President Obama is seeking and, for the first time, tax health-care benefits under the most generous plans." Excerpts of the negotiators' policy positions follow.

• "Seeking compromise on some of the most complex issues .. including how to compel employers to continue providing insurance to their workers; how to more fairly distribute government subsidies for coverage; and who and how many should be allowed to remain uninsured."
• "Limit (congressional) authority over Medicare by empowering an independent commission to extract savings from the program..."
  
• "Rejected a government-run health insurance plan in favor of a network of member-owned cooperatives..."
• "Outstanding issues include how to structure a Medicaid expansion to make it fair to individual states; how to establish subsidy levels to maximize assistance to the uninsured; and how to squeeze savings from Medicare without imposing an undue burden on seniors or compromising the quality of care. Another flashpoint is whether government insurance subsidies could be used to pay for abortions."
  
• "Agreed to about $500 billion in changes to existing federal health programs, including Medicare and Medicaid. For example, negotiators would require wealthier seniors to pay more for prescription drug coverage under Medicare, and they would charge co-payments for clinical lab procedures. The lab co-pays are potentially lucrative, raising about $20 billion over 10 years."
• "Other new sources of revenue include penalties on individuals who do not obtain health insurance, and a "free-rider" provision that would require employers that currently offer health insurance to continue to do so, or to reimburse the federal government for workers who switch to subsidized coverage through an insurance exchange. Both provisions could yield about $43 billion over 10 years."
• "The rest of the additional revenue -- about $250 billion -- would come from new taxes, primarily from an excise tax of up to 35 percent on insurance companies that sell extremely generous policies worth at least $21,000 a year for family coverage or $8,000 a year for individuals, according to aides involved in the discussions. About 7 percent of taxpayers hold such policies... Insurance companies are likely to pass the cost of such a tax to policyholders, raising the price of those plans. That would create a strong incentive for employers to stop offering them, thus driving down overall health-care costs. With employers paying less for insurance, tax analysts predict, they would pay workers more in wages, increasing income tax collections by as much as $180 billion over the next decade."
• "Smaller tax provisions (include) a $2,000 cap on flexible savings accounts -- which are currently unlimited -- and a plan to improve tax compliance by requiring businesses to tell the Internal Revenue Service when they pay corporations for services."
• "Studying a plan to fine insurance companies that do not pay providers electronically, a plan to reduce payments to providers to force them to increase efficiency and a plan to study the comparative effectiveness of various medical treatments."
• "Set a target for savings through those reforms. If the target is not met, they would create a panel, called the Medicare Preservation Commission, that would recommend ways to obtain additional savings."

It's doubtful that liberal democrats and conservative republicans will be able to endorse the resulting plan. However due to the Senate's key role in enabling any healthcare legislation, and the Senate Finance Committee's key role in funding healthcare reform, their recommendations are sure to be influential in this fall's debate.

Let's see whether Senate negotiators reconcile with key elements being touted by Obama in his "What's in it for me?" stage of the debate: "(1) ending the practice of denying insurance coverage to people with a pre-existing illness; (2) keeping people from losing their coverage if they get sick; and (3) protecting Americans who face high out-of-pocket medical costs." The Democratic National Committee released a new television ad today with the same message: