Preliminary Analysis of Specifications for the Chairman's Mark of the America's Healthy Future Act

September 16, 2009

CBO has just issued a preliminary analysis of specifications for the Chairmans mark of the Americas Healthy Future Act, which was released by the Senate Finance Committee earlier today. Among other things, the Chairmans proposal would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance "exchanges" through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicares payment rates for most services (relative to the growth rates projected under current law); impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the Medicaid and Medicare programs and the federal tax code.

According to CBO and JCTs assessment, enacting the Chairmans proposal would result in a net reduction in federal budget deficits of $49 billion over the 20102019 period. The estimate includes a projected net cost of $500 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $774 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Childrens Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $215 billion in revenues from the excise tax on high-premium insurance plans and $59 billion in revenues from other sources. The net cost of the coverage expansions would be more than offset by other spending changes that CBO estimates would save $409 billion over the 10 years, and by other tax provisions that JCT and CBO estimate would increase federal revenues by $139 billion over the same period. (The $139 billion figure includes $134 billion in additional revenues estimated by JCT apart from the excise tax on high-premium insurance plans and $5 billion in additional revenues from certain Medicare and Medicaid provisions estimated by CBO.)

You may noticethat CBOs letter does not contain a figure of $856 billion, which the committee has described as the gross cost of the Chairmans proposal. As we understand it, the committee staff arrived at that number by adding up essentially all of the positive numbers in the draft tables we provided them earlier. Thus, their use of a different total figure from ours appears to reflect primarily a different method for aggregating the underlying figures rather than different underlying figures.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent. Roughly 25 million people would purchase coverage through the new insurance exchanges, and there would be roughly 11 million more enrollees in Medicaid than is projected under current law. The number of people purchasing individual coverage outside the exchanges or obtaining coverage through employers would decline slightly, relative to currently projected levels.

Those estimates are all subject to substantial uncertainty. Furthermore, although we understand that the published document describing the Chairmans mark was intended to reflect the specifications provided to us, CBO and JCT have not reviewed that document to determine whether it conforms in all respects to those specifications.

Although CBO does not generally provide cost estimates beyond the 10-year budget window, Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nations health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great. CBO has therefore developed a rough outlook for the decade following the 10-year budget window by grouping the elements of the proposal into broad categories and assessing the rate at which the budgetary impact of each of those broad categories is likely to increase over time.

All told, the Chairmans proposal would reduce the federal deficit by $16 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, 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 GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBOs 10-year budget estimates.

These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicares payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments. The projected savings for the Chairmans proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented. (If those changes arose from future legislation, CBO would estimate their costs when that legislation was being considered by the Congress.)