Doesn’t the House Bill Fails One of President Obama’s Key Litmus Tests?

Yesterday morning Speaker of the House Nancy Pelosi released the latest version of the House health bill. And this afternoon, the Congressional Budget Office (CBO) released its preliminary analysis of the budget impacts of the bill.

One of the key findings of that analysis is that the coverage expansions in the bill would cost $1.055 trillion over the next ten years. And that would seem to imply that the bill fails one of President Obama’s key litmus tests, namely that the total cost be less than $900 billion.

As best I can tell, however, you won’t find that figure or interpretation in any of the initial media coverage. Instead, everyone is reporting that CBO concluded that the bill cost $894 billion and, therefore, that it appears to meet the $900 billion test. For example:

  • The Wall Street Journal: “House legislation to overhaul the health-care system, unveiled Thursday, includes a compromise version of a public insurance option and carries an overall cost of $894 billion over 10 years, House aides said.”
  • The New York Times: “House Democrats on Thursday unveiled an $894 billion package to remake the health care system.”
  • The Washington Post:”The House legislation aims to provide health insurance of one form or another to 96 percent of all Americans at an expected cost of just below $900 billion over 10 years.”

Why does my interpretation differ so much from the media’s? I can see only two possibilities. Either (a) the media have been snookered by proponents of the bill or (b) I missed the memo about how the policy community decided to change how costs are measured. (If it’s (b), please let me know so I can catch up.)

The issue here is the difference between the gross and net costs of expanding coverage. As CBO summarizes it (with my emphasis added):

The estimate includes a projected net cost of $894 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $1,055 billion in subsidies provided through the exchanges (and related spending), 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 $167 billion in collections of penalties paid by individuals and employers. On balance, other effects on revenues and outlays associated with the coverage provisions add $6 billion to their total cost.

I had been under the impression that everyone was using the gross cost measure when discussing the cost of expanding coverage. And I wasn’t alone. When the Baucus bill was released earlier this month, everyone (including each of the newspapers I linked to above) referred to it by its gross price tag ($829 billion), not its net ($518 billion), and said things like the Baucus bill “would cost $829 billion over the next 10 years — well under the $900 billion President Obama had suggested.”

If the right coverage figure for the Baucus bill was $829 billion, then we ought to be focusing on the $1.055 trillion coverage cost in the House bill.

And if $829 billion is not, in fact, the right measure, when did the goalposts move?

P.S. I will follow up shortly with a second concern about the cost discussion: that there are non-coverage items in the bill that cost substantial sums. That’s why I previously argued that the Baucus bill actually cost a smidgen more than $900 billion.

Update: Both Roll Call and the AP are using the more than $1 trillion figure.

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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