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Costs and Offsets in the House Tri-Committee Health Care Reform Plan

Jul 14, 2009 | Health Care

July 14 - Earlier today, House Democrats released a draft of the America's Affordable Health Choices Act , along with a series of summary documents explaining components of the bill. The Congressional Budget Office also released a Preliminary Analysis on certain provisions of the bill, related to coverage expansion

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CRFB has argued repeatedly, including in Principle #2: Paying for Health Care Reform, that at an absolute minimum health care reform should not increase the deficits.
 
Although no formal estimates yet exist on the deficit impact of the House bill, we can approximate its effects based on the information provided by the CBO, JCT, the Education & Labor Committee, and press accounts.
 
Provisions to expand health coverage – including by subsidizing health insurance, expanding Medicaid, and providing tax credits to small businesses – are expected to cost around $1.3 trillion over ten years (and around $230 billion in the tenth year):
Exchange Subsidies $773
Medicaid Expansion $438
Credits for Small Businesses $53
Indirect Costs $15
Total $1,279
According to the sponsors of the bill, though, the bill also includes sufficient offsets to make the bill roughly deficit neutral. Almost $240 billion of the costs are recouped through play-or-pay requirements on employers and penalties for individuals who fail to purchase insurance. Remaining offsets are split roughly evenly between reduced spending on Medicare and Medicaid and an income surtax on those making over $350,000 a year:
Play-or-Pay Payments $208
Individual Mandate Penalties $29
Medicare Advantage Cuts $156
Hospital Payment Reductions $102
Drug Price Reductions $110
Other Health Care Savings >$100
Surtax on High Earners $544
Closing of Tax Loopholes $37
Total
~$1,286
If these numbers are accurate, the House bill would reduce the deficit by $7 billion over ten years. However, a number of questions still remain:
  • Will the bill be deficit neutral at the end and beyond the 10-year budget window? Or only on average over the first ten years?
  • How will the Committees pay for their $229 billion plan to stabilize physicians' payments in Medicare by reforming the Sustainable Growth Rate formula?
  • What will Democrats do if their $550 billion surtax is too unpopular to pass? (See our list of potential offsets here)
  • How will the House reconcile their costs and offsets with proposals put forward by the Senate HELP Committee, Senate Finance Committee (pending), and White House?

The most important question, though, is the following: How will this bill slow the long-term growth of health care spending? As we argued in Principle #1: Slowing Health Care Cost Growth, this "must be at the center of any health care reform plan" - and it will be the subject of our next blog post.