House Leaders Say CBO Estimate Meets President’s Limit on Costs

The House's health care legislation (HR 3962) will cost $1.055 trillion between 2010 and 2019 and reduce the federal deficit by $104 billion, according to preliminary analyses from the Congressional Budget Office, Roll Call reports.

However, CBO specified that only the bill's gross cost exceeds $1 trillion; its net cost, after subtracting revenue from taxes and fees, is $894 billion, a number House Democrats emphasized when they released the bill on Thursday (Dennis, Roll Call, 10/29).

Previously, lawmakers stating the cost of health reform legislation have referenced the gross cost, Politico's "Live Pulse" reports. For example, the Senate Finance Committee's overhaul bill (S 1796) was widely reported to cost $829 billion -- its gross cost -- not $518 billion -- its net cost.

Still, House Speaker Nancy Pelosi (D-Calif.) at the House bill's unveiling said that the legislation meets President Obama's cost limit of $900 billion for health reform (Frates, "Live Pulse," Politico, 10/29).

The House bill includes a public option with physician reimbursement rates negotiated between the government and doctors, an expansion of Medicaid, new taxes on medical device makers, mandates for U.S. residents to purchase insurance and the creation of a new insurance exchange (California Healthline, 10/29).

Highlights of CBO's preliminary analysis appear below.

Coverage

CBO found that the bill would reduce the number of non-elderly U.S. residents who are uninsured by 36 million in 2019.

The bill still would leave 18 million U.S. residents without insurance coverage, roughly six million of whom would be undocumented immigrants.

Medicaid Expansion

The federal government would pay for 91% of the Medicaid expansion included in the bill, leaving states with a net increase of $34 billion over the bill's 10-year window.

The legislation's total cost largely "reflects $425 billion in net federal outlays for Medicaid" and the Children's Health Insurance Program. CHIP would be phased out by 2019 as the new insurance exchanges take effect.

CBO estimates that 30 million people would gain coverage through the exchanges.

In addition, Medicaid would raise payment rates to some primary care physicians under the bill, at a 10-year cost of $57 billion.

Medicare

Medicare spending would rise at an average annual rate of about 6% under the bill, below the annual growth rate of about 8% that has been seen over the previous two decades, according to the analysis.

Payment changes for both Medicare and Medicaid would reduce projected spending by $426 billion over the decade.

Public Option

CBO estimates that just six million U.S. residents would enroll in the public option. According to the analysis, the proposed public plan would "attract a broad network of providers" but would have higher premiums than private insurance options (Reichard, CQ HealthBeat, 10/29).

Surtax Not Indexed for Inflation

The main revenue source under the House reform bill -- a surtax on high-income U.S. residents -- is not indexed for inflation, which means that as U.S. residents' incomes increase in response to inflation, more people will become subject to the surtax, CQ Today reports.

Under the House bill, individuals whose annual adjusted gross income is above $500,000 and married couples whose annual adjusted gross income is above $1 million would be subject to a 5.4% surtax starting in 2011. The tax is expected to raise $460.5 billion over 10 years.

Earlier versions of the bill included annual inflation adjustments, but the current version does not.

House Democrats downplayed the impact of the lack of inflation indexing (Rubin, CQ Today, 10/29).

Blue Dogs Seek Clarifications of CBO Score

On Thursday, leaders of the fiscally conservative Blue Dog Coalition sent a letter to CBO Director Douglas Elmendorf seeking clarification on the score and asking what effects the bill would have on the entire economy, Politico reports (Budoff Brown/O'Connor, Politico, 10/30).

The letter was signed by four leaders of the 52-member Blue Dog Coalition and asks Elmendorf, "To what degree of certainty can you determine that this legislation will not increase the deficit in the second 10 years" after reform is implemented (Allen/Soraghan, The Hill, 10/29).

Health Care Groups Respond to House Bill

Response to the House bill among various health industry trade groups and business organizations "ranged from lukewarm to outright hostile," according to CQ HealthBeat.

• Business groups: In a letter to Pelosi and House Minority Leader John Boehner (R-Ohio), a coalition of major business groups criticized provisions of the House bill and urged the chamber to reject the legislation. The letter was signed by the U.S. Chamber of Commerce, the National Association of Manufacturers, the Business Roundtable and other business organizations.
• Hospitals: Unlike other health care groups, the American Hospital Association offered praise for the bill, particularly its expansion of coverage for 96% of all U.S. residents. However, Richard Umbdenstock, the president and CEO of AHA, said that the expansion of Medicaid coverage to people earning 150% of the poverty level would be "problematic" for hospitals and states already grappling with smaller budgets. He also expressed concern that a $20 billion tax on medical device makers included in the legislation would be passed along to hospitals (Norman, CQ HealthBeat, 10/29). In addition, Chip Kahn, the president of the Federation of American Hospitals, said the bill "reflects further progress toward a reformed health care system anchored by meaningful coverage for virtually all Americans" (Young, The Hill, 10/29).
• Medical device makers: The Advanced Medical Technology Association indicated that it appreciated a reduction in the proposed tax on medical device makers below earlier provisions, The Hill reports. The current proposal is expected to generate $20 billion over 10 years (Young, The Hill, 10/29). AdvaMed President and CEO Stephen Ubl said the tax should not take effect until 2013 and should be tiered by product type.
• Insurers: America's Health Insurance Plans CEO Karen Ignagni said the legislation's inclusion of a public option would have dire consequences, CQ HealthBeat reports. "A new government-run plan would bankrupt hospitals, dismantle employer coverage, exacerbate cost-shifting from Medicare and Medicaid, and ultimately increase the federal deficit," she said. The BlueCross and BlueShield Association released a statement saying that the public option "would jeopardize affordability and access to coverage for the 160 million people who receive their benefits through their employers today" (Norman, CQ HealthBeat, 10/29). Insurers also opposed new regulations the bill would impose upon them, such as forcing them to offer a minimum benefits package to anyone who applies for coverage regardless of pre-existing conditions and preventing insurers from varying premiums based on an enrollee's age, gender or health status (Young, The Hill, 10/29).
• Pharmaceutical companies: The drug industry's main lobby, the Pharmaceutical Research and Manufacturers of America, will continue to oppose the House legislation, according to PhRMA Senior Vice President Ken Johnson (Norman, CQ HealthBeat, 10/29). "Unfortunately, some people are unrealistic in the expectations of what our industry can contribute to health care reform without triggering catastrophic job losses and driving critically important (research and development) overseas," Johnson said (Heavey/Richwine, Reuters, 10/29). Earlier this year, the White House and Senate Finance Committee Chair Max Baucus (D-Mont.) crafted a deal with the pharmaceutical industry in which the industry pledged $80 billion in savings to the government to help pay for reform. House leaders ignored that agreement and included an additional $60 billion in costs for the pharmaceutical industry to offset Medicare rebates included in the bill. Despite opposition to the House bill, drugmakers are still "on board for health-care reform," Johnson said (Mundy, Wall Street Journal, 10/30).