Measuring the Effect of Reform Proposals and the Federal Budgetary Commitment to Health Care

October 30, 2009

Current proposals to reform the health care and health insurance systems would affect the federal budget and the nations spending for health care in many ways, and those effects can be summarized using a variety of different measures. Today CBO released a letter toclarify the measures being used by CBO in its analysis of such proposalsin particular, the effects of proposals on federal budget deficits and on the magnitude of the federal budgetary commitment to health care. As concrete examples, the letter discusses the preliminary analysis recently completed by CBO and the staff of the Joint Committee on Taxation (JCT) of the proposal put forward by the Chairman of the Senate Committee on Finance, as amended by the committee, and of the preliminary analysis by CBO and JCT of H.R. 3962, the Affordable Health Care for America Act, which was introduced yesterday in the House of Representatives.

Effect on Federal Budget Deficits

CBO and JCTs analysis of a health care reform proposal focuses on its net impact on federal budget deficits during the 10 year budget window from 2010 through 2019. This bottom line reflects all of the effects of a proposal on spending and revenues, regardless of whether or how they are related to the provision of health care. CBO and JCT estimated that the proposal approved by the Committee on Finance would result in a net reduction in federal budget deficits of $81 billion over the 20102019 period, and that H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the same period.

Effect on the Federal Budgetary Commitment to Health Care

CBOs letters providing preliminary analyses of the proposal approved by the Senate Committee on Finance and H.R. 3962 also addressed the effects of the proposals on the federal budgetary commitment to health care. CBO used that phrase in a letter earlier this year to describe the sum of net federal outlays for health programs and tax preferences for health care. CBO has used this measure because some Members have expressed interest in the federal governments overall role in the financing of health careboth under current law and under alternative reform proposals. (Whether the federal role should be expanded, contracted, or held the same is a policy choice, and CBO, as always, makes no policy recommendations.)

Federal outlays for health programs are not an adequate gauge of that overall role because tax expenditures for health care are substantial under current law and because new tax credits to help purchase health insurance are a significant part of some reform proposals. Similarly, federal tax expenditures for health care do not, by themselves, capture this overall role because federal spending on health care is also substantial under current law and because such spending would increase significantly under some reform proposals. By including both the federal governments spending for health care and the subsidies for health care that are conveyed through reductions in federal taxes, the federal budgetary commitment to health care represents a broad measure of the resources allocated by the federal government in this areaand a measure that is independent of the extent to which outlays or tax provisions are used to channel those resources.

For example, how would the proposal approved by the Senate Finance Committee affect the budgetary commitment to health care? CBO and JCTs estimates imply that the proposal would increase the federal budgetary commitment to health care by about $85 billion over the 2010-2019 period. (Again, we estimate that the proposal would result in a net reduction in federal budget deficits of $81 billion over the same time period.)

Bending the Cost Curve

Major proposals to reform health care would affect not only the federal budget but also spending for health care by individuals, firms, and other levels of government. A broad measure encompassing those effects would be the impact on total national health expenditures. However, CBO does not analyze national health expenditures as closely as it does the federal budget, and at this point CBO has not assessed the net effect of health care reform proposals on those expenditures, either within the 10-year budget window or for the subsequent decade. That is, CBO has not evaluated whether reform proposals would lower or raiseor bend down or upthe curve of national health expenditures.