Health Care Reform: Congressional Budget Office Score of Affordable Health Care Act for America – Perhaps Not So Affordable

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) completed a preliminary analysis of H.R. 3962, the Affordable Health Care for America Act, as introduced on October 29, 2009. The price tag is likely to change because the report does not constitute a final and comprehensive cost estimate for the bill. Below is a summary from CBO.

 

The legislation keeps a mandate for most citizens to obtain health insurance; a requirement for most small employers to buy insurance for their employees and families and keeps the health insurance exchanges; significantly expands eligibility for Medicaid; substantially reduces the growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); and imposes an income tax surcharge on high-income individuals.

 

According to the CBO, the bill would result in a net reduction in federal budget deficits of $104 billion over the 2010–2019 period, with smaller reductions in the decades after.

 

The legislation is projected to cost $894 billion over 10 years for the proposed expansions in insurance coverage. This would result in a net increase in federal deficits of $894 billion over fiscal years 2010 through 2019. That estimate primarily reflects $425 billion in net federal outlays for Medicaid and SCHIP and $605 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending.

 

Tax credits for certain small employers who offer health insurance would also reduce revenues by $25 billion over 10 years. Those costs would be partly offset by a net increase in receipts, totaling $167 billion over the period, from two sources: penalty payments by uninsured individuals, which would yield receipts of about $33 billion, and penalty payments by employers under the play-or-pay requirement, which would total about $135 billion.

 

CBO estimates that $426 billion would be saved on health care spending by enacting the legislation, and receipts resulting from the income tax surcharge on high-income individuals and other provisions would increase federal revenues by

$572 billion over that period.

 

CBO estimates that state spending on Medicaid would increase on net by about $34 billion over the 2010–2019 period.

 

The bill would impose a “play-or-pay” requirement on employers, who would either have to offer qualifying insurance to their employees and contribute a substantial share toward the premiums, or pay a fee to the federal government that would generally equal 8 percent of their payroll. Smaller employers (those with an annual payroll of less than $750,000) would either pay a lower rate or be exempt from that requirement altogether.

 

If a worker has to pay more than 12 percent of their income for their employers’ insurance, then the employers would have to pay an amount equal to the per-worker fee due for firms subject to the play-or-pay penalty.

 

Under certain circumstances, firms with relatively few employees and relatively low average wages would also be eligible for tax credits to cover up to half of their contributions toward health insurance premiums.

 

CBO’s assessment of a public plan paying negotiated rates shows that it would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges.

 

Medicare/Medicaid

 

CBO estimates that enacting those provisions would reduce direct spending by about $426 billion over the 2010–2019 period. The provisions that would result in the largest budgetary effects include these:

 

–     Permanent reductions in the annual updates to Medicare’s payment rates for most services in the fee-for-service sector (other than physicians’ services), yielding budgetary savings of $229 billion over 10 years.

 

–     Setting payment rates in the Medicare Advantage program on the basis of Medicare spending per beneficiary in the fee-for-service sector and changing the way that payments to Medicare Advantage plans reflect differences in the health status of enrollees, yielding savings of an estimated $170 billion (before interactions) over the 2010–2019 period.

 

–     Increasing Medicaid’s payment rates to physicians and other health care professionals for the provision of primary care services to Medicaid beneficiaries, costing roughly $57 billion over 10 years.

 

Provisions with Significant Budgetary Impact

 

Community Living Assistance Services and Supports (CLASS) provisions, which would establish a voluntary federal program for long-term care insurance. The program would pay out far less in benefits than it would receive in premiums over the 10-year budget window, reducing deficits by about $72 billion over that period.

 

A Public Health Investment Fund and a Prevention and Wellness Trust, which would be funded through future appropriations of about $34 billion to finance various public health, prevention, and wellness programs. CBO previously noted that prevention will not save any money.

 

$9 billion in federal savings in Medicaid and reduced subsidies paid through the insurance exchanges by using regular electronic updates for administrative transactions that enable electronic funds transfers, claims management processes, and verification of eligibility. In addition, these standards would result in an increase in revenues of about $13 billion as an indirect effect of reducing the cost of private health insurance plans.

 

An abbreviated approval pathway for follow-on biologics (biological products that are highly similar to or interchangeable with their brand-name counterparts), which would yield direct spending savings of an estimated $6 billion over the 2010–2019 period.

 

Discretionary Costs

 

The IRS would need between $5 billion and $10 billion over 10 years to implement the eligibility determination, documentation, and verification processes for subsidies. Another $5 billion to $10 billion over 10 years for HHS will be needed for implementing the changes in Medicare, Medicaid, and CHIP as well as certain reforms to the private insurance market.

 

CBO was not able to predict the impact of the legislation after ten years because of a wide range of changes that could occur—in people’s health, in the sources and extent of their insurance coverage, and in the delivery of medical care (such as advances in medical research, technological developments, and changes in physicians’ practice patterns)—that are likely to be significant but are very difficult to predict, both under current law and under any proposal.

 

What’s Next

 

The Senate Finance and HELP Committees are in the process of combining their bills into one which is promised to be released this week.  The house is expected to vote on this latest version before thanksgiving. 

 

The bill promises to significantly increase the cost per employee for most small businesses which will lead to higher levels of unemployment.   It will be paid for largely from reduced fees paid to hospitals and physicians offices.