The Effects of Two Specified Policy Options for Health Care on the Federal Budget Deficit

September 22, 2009

Yesterday CBO released a letter responding to questions from the Ranking Member of the U.S. House of Representatives Committee on the Budget abouthow two policy options for health care would affect the budget deficit over the long term. One option would replace the current tax exclusion for premiums for employment-based health insurance with a tax credit that would grow over time at a rate less than that of health care inflation. The other option would convert Medicaid into a defined-contribution program with federal outlays increasing over time at a rate less than that of health care inflation. In CBOs view, both options would reduce future budget deficits, relative to projections under current law, by amounts that increased over time. The analysis presented in the letter covers only thesetwo general policy conceptsand does not represent an analysis of any particular legislation.