Senate Health Bill Price Tag

Earlier yesterday the Congressional Budget Office released an updated analysis of the Senate health bill. The update reflects all the amendments that were adopted during Senate consideration of the bill, some technical adjustments, and the assumption that the bill would be enacted in the spring of 2010 (rather than December 2009, as previously assumed).

The bottom line is that not much has changed. The near-term costs of the bill have increased somewhat, but the budget story remains essentially the same.

The health care debate seems to have moved on from budget issues. For example, the big news yesterday was that the Senate Parliamentarian announced that the legislative strategy of using reconciliation to pass a second health care bill will work–at least as far as he is concerned–only if the Senate bill is first passed by the House and signed into law by the President.

Nonetheless, as a public service let me offer a quick summary of the budget impacts of the bill over the next ten years:

There are four things you should take away from this table:

1. The Senate bill costs about $971 billion — not $875 billion — over the next ten years. As long-term readers know, one of my pet peeves is that the media (and many policymakers) use the phrase “cost of the health care bill” when they should be saying “cost of the provisions in the health care bill that expand health insurance coverage.” This distinction is important because all the health bills also contain provisions that have nothing to do with expanding insurance coverage. The Senate bill, for example, would help fill in the doughnut hole in Medicare Part D, fund more community health centers, and fund prevention efforts, among other things. These efforts may be worthy, but they aren’t free. Thus while the media reports that the bill costs $875 billion, I estimate that the real cost is about $971 billion. That figures includes the $875 billion being spent to increase health insurance coverage plus $94 billion in new spending on other health initiatives and $2 billion in new tax cuts.

2. The Senate bill will reduce the deficit by $118 billion over the next ten years. The bill contains more than $1 trillion in offsets, including $251 billion in tax increases related to health insurance coverage (e.g., the tax on “Cadillac” health plans, penalties on some employers, and penalties on some uninsured individuals), $266 billion in tax increases unrelated to health insurance coverage (e.g., higher Medicare payroll taxes on wages above $200,000), and $572 billion in spending reductions (e.g., lower Medicare payment rates for some providers).

3. The near-term budget savings are exaggerated by the inclusion of the CLASS Act; adjusting for that, the ten-year deficit reduction is $48 billion. Another item familiar to long-time readers, the CLASS Act would create an insurance program for long-term care. Premium income, which reduces the reported deficit, would start much faster than benefit payouts, so the program generates surpluses in the near-term. But it won’t in the long-run. So most budgeteers view the inclusion of the CLASS Act here as a gimmick. Netting out the $70 billion in budget savings from the CLASS Act, and you have deficit reduction of $48 billion over the next decade.

4. The bill would increase the Federal commitment to health care over the next ten years. CBO created this metric to reflect the fact that the Federal government supports health care both through spending programs and through tax subsidies, most notably that for employer-provided health insurance. CBO finds that the combination of these efforts will expand during the first ten years of the bill. If the entire bill executes as written, however, CBO expects that the federal commitment to health care will decline in the second decade.

Note: CBO does not calculate a total cost figure for the health bills. The bills include dozens of policy changes, and it would be difficult (perhaps impossible) to allocate all their impacts to specific provisions. Thus, my figures should be considered approximate. I calculated the $94 billion figure for additional spending by adding up all the individual line items in Table 4 of the cost estimate that increased direct spending, with a couple of exceptions. First, I did not include the interaction effects that CBO lists as the end of the estimate because I was not sure how to allocate them; the interactions are large and could have a material effect on my estimate, potentially up or down. Second, there was one policy that led to both spending increases and spending decreases; I included the net spending increase in my figure. I am certainly open to other suggestions about how to add up the other spending in the bill. It’s also worth noting that I have taken as given CBO’s estimate of the gross cost of expanding coverage. There are some nuances in the calculation of that figure (e.g., the treatment of payments in a reinsurance program) that I need to understand better. I made similar calculations for the $2 billion in tax cuts itemized in the JCT analysis of the bill.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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