Congressional Budget Office Releases Cost Estimates on Reform Bill
The Senate Finance Committee's health reform bill would result in coverage for 94% of all non-elderly U.S. residents and cost $774 billion over a decade, below the committee's $856 billion estimate, according to the Congressional Budget Office's preliminary estimates released on Wednesday, CongressDaily reports (Edney, CongressDaily, 9/17).
The committee's bill aims to provide coverage to more U.S. residents by expanding Medicaid and enrolling more people in private insurance plans through new insurance exchanges (Wayne, CQ Today, 9/16). CBO determined that expanding Medicaid will cost $287 billion and the tax credits offered to those buying insurance in the exchanges would total $463 billion.
According to CBO, "The added revenues and cost savings are projected to grow more rapidly than the cost of coverage expansion" (CongressDaily, 9/17).
Effects on Budget Deficit
According to the report, the Finance Committee's bill would reduce the federal deficit by $49 billion in its first 10 years (Wayne, CQ Today, 9/16).
In an effort to answer questions from some senators regarding whether the bill can be self-sustaining past the first 10 years, CBO estimated the proposal's effect 20 years out (CongressDaily, 9/17).
In a letter accompanying the estimate, CBO said, "In subsequent years, the collective effect of (the bill's spending changes) would probably be continued reductions in federal budget deficits." The agency estimated that it would reduce the federal deficit by about 0.5% of gross domestic product between 2020 and 2029.
CBO estimated that the bill would leave about 25 million U.S. residents without coverage, about one-third of whom would be undocumented immigrants.
In addition, the report found that the number of people with employer-sponsored insurance would slightly increase between 2011 and 2014, but once the coverage expansions are implemented they would begin to decline.
In addition, the CBO report stated that the new not-for-profit health insurance cooperatives created by the bill "seem unlikely to establish a significant market presence in many areas of the country" (Wayne, CQ Today, 9/16).
Although the bill Finance Committee Chair Max Baucus (D-Mont.) released on Wednesday did not significantly differ from the framework he released earlier, it did include more details on how the legislation would be funded.
The largest revenue source in the bill is a 35% non-deductible excise tax on insurance companies that offer so-called "Cadillac plans" that cost more than $8,000 annually for individuals or $21,000 annually for families. The provision is expected to raise about $214.9 billion and would affect about 8% of taxpayers.
It would be implemented in 2013 over a three-year transition period in 17 states with the least-affordable health benefits as determined by the White House.
A Finance Committee aide called the tax proposal the bill's "single most important provision" for controlling health care costs, effectively ending the tax-free status of employer-sponsored insurance and discouraging employers from offering expensive plans that lead to overuse of health care services (Rubin, CQ Today, 9/17).
In addition to the tax on expensive health plans, the bill would impose fees on several sectors of the health care industry, charging companies based on their sector's market share.
Under the bill, the federal government beginning in 2010 would collect about $4 billion annually from medical device companies, $2.3 billion annually from the pharmaceutical industry, $6 billion annually from health insurers and $750 million annually from clinical laboratories (Rubin, CQ Today, 9/16).
Other financing sources include:
- A $2,000 cap on the amount of money patients can contribute to tax-free flexible spending accounts starting in 2013 (Adamy, Wall Street Journal, 9/17). The proposal would raise about $16.5 billion;
- A ban on consumers using money from flexible spending and health savings accounts for over-the-counter medications, which would raise about $5.4 billion;
- Increasing penalties for using money from HSAs for non-medical purposes from 10% to 20%, which likely would generate $1.3 billion (Rubin, CQ Today, 9/16).
According to CBO, much of the costs for the health reform plan would be offset by Medicare spending reductions, which are expected to total $409 billion over the first 10 years. In addition, the bill would create an independent Medicare Commission that would attempt to reduce wasteful spending in Medicare, which would save about $23 billion over the next decade (Wall Street Journal, 9/17).
Inconsistencies With Finance Committee Estimates
On Wednesday, CBO Director Douglas Elmendorf explained in his blog that the reason why the CBO total estimate was less than the Finance Committee's estimate of $856 billion is because CBO added the data differently but used the same figures.
Finance Committee staffers said that the CBO score reflects account savings and spending.Senate Budget Committee ranking member Judd Gregg (R-N.H.) said that the scoring "is dependent on Congress' willingness to follow through on painful cuts they have been unwilling to follow through on in the past, including payments rates and physicians and hospital market basket cuts" (CongressDaily, 9/17). This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.