CBO: Health bill spends $871B, reduces deficit by $132B

Congress’s budgetary scorekeeper affirms that the Senate’s healthcare reform legislation adheres to President Barack Obama’s pledge to spend less than $900 billion and reduce the federal budget deficit through the bill, which would extend health insurance coverage to 31 million people.

According to the Congressional Budget Office (CBO), the latest version of the legislation introduced by Senate Majority Leader Harry Reid (D-Nev.) would require $871 billion over 10 years in new federal spending, most of which would take the form of health insurance subsidies for low- and middle-income people and expansions of Medicaid and the Children’s Health Insurance Program.

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CBO Director Doug Elmendorf presented Reid with this preliminary cost estimate in a letter Saturday.

Those costs are more than offset during the 10-year budget period by $483 billion worth of spending reductions in Medicare and $614 billion generated from an excise tax on high-cost health insurance plans, taxes on healthcare companies, penalty fees paid by employers who fail to offer insurance coverage and individuals who fail to purchase it and other tax effects of the bill.

The bill would require nearly all legal U.S. residents to obtain health coverage, extend Medicaid benefits to everyone earning up to 133 percent of the federal poverty level and provide subsidies on a sliding scale to people earning between 133 percent and 400 percent of the federal poverty level.

The legislation would bring the rate of insurance coverage for non-elderly legal U.S. residents to 94 percent by 2019, the CBO concludes. Of the 31 million newly insured people, 26 million would purchase insurance through the bill’s health insurance exchange and 15 million would join Medicaid.

Twenty-three million people would still lack insurance, most of whom would be exempt from the individual mandate because they earn too much to qualify for subsidies but too little to afford coverage. About one-third of the remaining uninsured would be illegal immigrants, who are not eligible to participate in the programs.

A relatively new proposal to task the Office of Personnel Management (OPM), which manages the Federal Employees Health Benefits Program, to contract with private insurers to create two national plans to compete with other insurance on the exchange would have little effect. These provisions were added as part of a compromise between supporters and opponents of creating a government-run public option insurance program, which is not in the Reid bill.

“Whether insurers would be interested in offering such plans is unclear, and establishing a nationwide plan comprising only nonprofit insurers might be particularly difficult,” the CBO reports. “Even if such plans were arranged, the insurers offering them would probably have participated in the insurance exchanges anyway, so the inclusion of this provision did not have a significant effect on the estimates of federal costs or enrollment in the exchanges.”

The legislation would achieve deficit-reduction during its first 10 years largely because the spending cuts and tax increases would take effect several years before most of the new spending begins.


The CBO, however, says that the spending reductions and additional revenue would accrue at a faster rate than new spending during the second 10 years, leading to continuing deficit reduction in the future. “CBO expects that the legislation, if enacted, would reduce federal budget
deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range around one-half percent of [gross domestic product],” the letter says.

Likewise, the estimate says that although the legislation would increase the federal budgetary commitment to healthcare by $200 billion over the first 10 years, “CBO expects that the proposal would generate a reduction in the federal budgetary commitment to health care during the decade following the 10-year budget window.”

As the budget office has throughout the year, it emphasizes that this will only occur if Congress allows those cuts and tax hikes to take full effect and expresses skepticism that they will. “These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation,” the letter says.