CBO on the Kennedy Health Bill

On Monday afternoon, the Congressional Budget Office (CBO) released a preliminary analysis of the Affordable Health Choices Act, commonly known as the Kennedy Health Bill.  The draft bill language was distributed last week by the Senate Committee on Health, Education, Labor, and Pensions (HELP) which Senator Kennedy chairs.

Based on work by CBO and the Joint Committee on Taxation (JCT), the analysis provides preliminary estimates of the budget impact of the bill as well as its impacts on health insurance coverage.  Some highlights:

1.  The analysis is preliminary. CBO and JCT have not yet had time to analyze every provision in the bill, some provisions remain in flux, and new provisions may be added.  In short, health policy is a moving target.

2. The bill would have a net budgetary cost of slightly more than $1 trillion over the next ten years (2010 – 2019). To get the bill passed, its proponents will have to find a way to offset most or all of those costs.  That’s why President Obama and others have been talking about various spending reductions (e.g., reduced payment rates for some providers) and revenue increases (e.g., reducing the benefit of itemized deductions) in recent days.  As a political matter, the offsets may turn out to be more difficult than the core policy.

3. The bill would increase Federal spending by $1.3 trillion, which would be partially offset by about $260 billion in higher tax revenues; the net cost is slightly more than $1 trillion. Spending would increase primarily because the Federal government would provide subsidies for individuals and families to purchase health insurance through insurance exchanges (also known as gateways). Revenues would increase because fewer workers would receive employer-sponsored health insurance (which is not subject to income and payroll taxes).  Those workers would still be compensated at market rates, but more of their compensation would be in taxable forms (e.g., wages and salaries).

4. The bill would reduce the number of uninsured by about a third; in 2019, for example, the estimated number of uninsured would fall from 54 million to 37 million. Put another way, the fraction of the nonelderly population lacking health insurance in 2019 would decline from about 19% under current law to about 13% under the proposal.  (As CBO notes, the uninsured includes some who are eligible for Medicaid, but haven’t enrolled, as well as some unauthorized immigrants.)

5. By 2019, about 40 million people (14% of the non-elderly population) would get health insurance through exchanges. That figure includes the 17 million who would have been uninsured, 15 million who would have had employer-sponsored insurance, 6 million who would have had other types of health insurance, and 2 million who would have been enrolled in Medicaid.

6. The draft bill does not include a Federal insurance plan. Such a plan could be added to the bill.  Consistent with my previous post, the bill language refers to the possibility of a “public option” while CBO refers to it as a “public plan.”

All eyes will now focus on the proposals being considered by the Senate Finance Committee.  Finance has jurisdiction over Medicare, Medicaid, and tax policy, so its primary burden will be finding ways to pay for health care reform.  Of course, it may also have ideas for increasing insurance coverage, e.g., by expanding Medicaid.

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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