Senate Healthcare Reform Bill Would Reduce Deficit, CBO Says

October 08, 2009

October 8, 2009 — A heavily amended healthcare reform proposal before the Senate Finance Committee would cost $829 billion, but it would ultimately trim the federal deficit by $81 billion through 2019, according to an analysis released yesterday by the Congressional Budget Office.

An earlier version of the proposal would have cost $774 billion and reduced the deficit by $49 billion.

The $829 billion in outlays in the amended bill would expand coverage under Medicaid and the Children's Health Insurance Program (CHIP), provide tax credits and subsidies for individuals obtaining coverage through health insurance exchanges, and give tax credits to small employers providing coverage, the CBO report stated. The proposal would recoup these costs, and then some, through revenue from various sources, including $201 billion in taxes on high-premium insurance plans, and $404 billion in spending cuts for Medicare, Medicaid, CHIP, and other federal programs.

After 2019, cost savings and added revenues are expected to grow more rapidly than the cost of expanding coverage, which would continue to reduce the federal deficit over the following 10 years, according to the report.

Co-ops Would Lack Significant Market Presence in Many Areas

The proposal, which the Senate Finance Committee will vote on this Tuesday, would reduce the number of uninsured in 2019 by 29 million, leaving 25 million nonelderly adults, a third of them unauthorized immigrants, without coverage, according to the CBO report. The analysis seemed to throw cold water on the notion that member-owned "co-op" health plans would provide a robust substitute for a government-sponsored plan, otherwise known as the public option, which other reform bills in Congress call for.

"The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments," the CBO report stated.

The report cheered supporters of healthcare reform who need an affordable proposal to win congressional votes as well as the signature of President Obama, who wants a plan that will not add "a dime to the deficit." Peter Orszag, the director of the Office of Management and Budget in the White House, declared in his blog that the legislation "demonstrates that we can expand coverage and improve quality while being fiscally responsible."

In contrast, Sen. Charles Grassley (IA), the ranking Republican on the Senate Finance Committee, issued a statement decrying a bill that calls for hundreds of billions of dollars in new taxes and fees, yet still leaves 25 million people without health insurance in 2019. "When people have been laid off or are worried about getting laid off, the idea of new taxes on employers and individuals should concern all of us," Sen. Grassley stated. "I'd like to see Congress insure more Americans with less stress on the weakest economy, including family finances, in decades."

Fixing SGR Long-Term Could Put Proposal in the Red

The CBO report noted one potential time bomb involving Medicare reimbursements to physicians that could blow up its projections. The Senate Finance Committee legislation would give physicians a Medicare raise of 0.5% in 2010 and eliminate a scheduled, across-the-board pay cut of 21.5% that is mandated by the Sustainable Growth Rate (SGR) formula. This mechanism sets annual targets for Medicare expenditures on physician services and reduces physician reimbursements the following year if those targets are exceeded, producing a deficit.

Throughout this decade, Medicare expenditures on physician services have regularly been above SGR targets, but Congress has averted scheduled pay cuts in the same way the Senate Finance Committee proposal does. But since the SGR deficit has continued to accumulate, each reprieve has only postponed the pay cut until the following year, and made it bigger in the process. Accordingly, the Senate Finance Committee proposal would translate into a roughly 25% rate decrease in 2011, which is factored into CBO projections.

The agency noted that the long-term budgetary effect of the proposal could be quite different if the 2011 pay cut does not take effect as planned. In contrast, the healthcare reform legislation pending in the House allocates more than $200 billion to erase the SGR deficit from the books — a move that would put the Senate Finance proposal in the red.

If the Senate Finance Committee approves the bill as written, it would have to be merged with a healthcare reform bill passed by the Senate Health, Energy, Labor, and Pensions (HELP) Committee before it comes before the full Senate for a vote.


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