CBO issues correction: Health bill nixes deficit less than thought

The Congressional Budget Office (CBO) corrected its estimate of the Senate health bill's costs on Sunday, saying it would reduce deficits slightly less than they'd predicted.

In a letter to Senate Majority Leader Harry Reid (D-Nev.), CBO Director Douglas Elmendorf said that the nonpartisan budget office had overestimated the extent to which the legislation's new Independent Payment Advisory Board would bring down the deficit.

While the CBO's estimates of the board's and overall bill's impact in its first 10 years of the legislation are correct, Elmendorf wrote, the program's effects on deficit reduction during the second decade of the program were overestimated.

"CBO expects that the legislation, if enacted, would reduce federal budget deficits over the decade after 2019 relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of GDP," Elmendorf said. "In comparison, the extrapolations in the initial estimate implied a reduction in deficits in the 2020–2029 period that would be in a broad range around one-half percent of GDP."

In essence, Elmendorf explained on his blog:

With this corrected reading, savings from changes to the Medicare program (along with other changes to direct spending that are not associated directly with expanded insurance coverage) would increase at a rate that is between 10 percent and 15 percent per year during the 2020–2029 period, compared with a growth rate of nearly 15 percent reported in the initial estimate.

The error reflects the greater uncertainty the CBO has about the bill's effects in its second decade, the director said, but said that the correction represents a "small share" of the expected deficit reductions in the health bill. Elmendorf also said that the amended version of the bill released on Saturday would still go further to reduce deficits than the initial version of the legislation had.

Read Elmendorf's entire letter here.

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