In a potentially significant projection, the Congressional Budget Office stated in a July 26 letter to House Ways & Means Republicans, that "relative to current law, the (House Tri-Committee health reform bill) would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window."

This is a significant conclusion for two reasons: (1) for fiscal policy reasons, this casts doubt over the long-term fiscal responsibility of the House plan; and (2) if congressional Democrats have to resort to the use of budget reconciliation (see the "Reconciliation Fallback" below), the CBO statement on outyear deficits may cause key spending provisions in the bill to violate the Senate's Byrd Rule. (The Byrd Rule prohibits filibuster-proof Budget Reconciliation bills from including provisions that would result in outyear deficit increases.)

The most likely way to avoid a CBO projection of outyear deficit increases would be to include in the bill a trigger mechanism that would automatically scale back spending provisions in a manner that would maintain the bill's deficit neutrality. (The Senate Finance Committee's Moynihan-Chafee health reform bill in 1994 included such a provision and CBO has suggested that the Administration's Independent Medicare Advisory Council proposal--IMAC--could result in long-term budgetary savings if it were to include a fall-back mechanism. See article below.)

CBO's rationale for their outyear projections was the following:

"Estimating the effects of major changes to the health care and health insurance systems over the next 10 years is very difficult and involves substantial uncertainty....As a result, CBO does not provide formal cost estimates beyond the 10-year budget window. However, we have said that in evaluating proposals to reform health care, the agency will endeavor to offer a qualitative indication of whether they would be more likely to increase or decrease the budget deficit over the second decade.

"The starting point for such an analysis of the recent House proposal is our estimate of the proposal’s impact on the federal budget deficit in the first 10 years. As discussed in CBO’s letter of July 17, we estimate that the proposal as a whole would increase federal deficits by $239 billion over the 2010–2019 period. That estimate has three major components: the net effect of the coverage specifications, which affect both spending and revenues and which would add an estimated $1,042 billion to cumulative deficits over that period; the effect of other provisions, primarily regarding Medicare, that would reduce direct spending by a net $219 billion; and the effect of still other provisions (primarily, an income tax surcharge on high-income individuals) that would increase revenues by $583 billion. Under the proposal, federal spending on health care would increase by approximately the difference between the net cost of the coverage specifications and the reductions in direct spending.

"Looking ahead to the decade beyond 2019, CBO tries to evaluate the rate at which the budgetary impact of each of those broad categories would be likely to change over time. The net cost of the coverage provisions would be growing at a rate of more than 8 percent per year in nominal terms between 2017 and 2019; we would anticipate a similar trend in the subsequent decade. The reductions in direct spending would also be larger in the second decade than in the first, and they would represent an increasing share of spending on Medicare over that period; however, they would be much smaller at the end of the 10-year budget window than the cost of the coverage provisions, so they would not be likely to keep pace in dollar terms with the rising cost of the coverage expansion. Revenue from the surcharge on high-income individuals would be growing at about 5 percent per year in nominal terms between 2017 and 2019; that component would continue to grow at a slower rate than the cost of the coverage expansion in the following decade. In sum, relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window. (emphasis added)

"Under any proposal that provided new federal subsidies for the purchase of health insurance, the rate of growth in federal spending would depend importantly on how the subsidies were indexed over time. As long as overall spending for health care continued to expand as a share of the economy, people’s share of insurance costs would continue to rise faster than their income, or the government’s subsidy costs would continue to rise faster than the tax base, or both. The proposal limits the share of income that eligible people would have to pay when they purchased coverage in the insurance exchanges, and that share of income would not change over time. In addition, insurance plans offered through the exchanges would be required to pay a specified share of costs for covered services (on average), and that share also would not change over time. Combining those provisions, increases in health care spending in excess of the rate of growth in income would be borne entirely by the federal government in the form of higher subsidy payments—because those payments would have to cover the entire difference between the total premium for insurance coverage and the capped amount that enrollees would pay. Those factors help explain why the costs of the coverage provisions would continue to grow rapidly in the decade after 2019."

Full Text of CBO Letter

Current Status of Health Care Reform -- Highlights:

• With the House heading toward August recess at the end of this week, the Democrats' Tri-Committee bill (which has passed the Ways & Means, and Education and Labor Committees) is stalled in the Energy and Commerce Committee where Blue Dog Democrats are seeking provisions to ensure slower growth in health care spending.


• According to Congress Daily, Senate Finance Committee Democrats are reportedly warming to a proposal to tax insurance companies that sell the most expensive healthcare coverage (e.g. plans valued at more than $25,000 per year). This has a similar objective to earlier proposals to tax employer health benefits above a certain threshold--but seeks to avoid a direct tax on employees.


• If the Senate Finance Committee bipartisan working group can reach closure on its lengthy negotiations, it faces major hurdles in passing the bill out of committee and, later on, the informal process of "merging" its bipartisan plan with the (Kennedy-Dodd) plan passed by the Senate HELP (Health, Education, Labor, and Pensions) Committee.


• The Reconciliation Fallback: Looming ever-closer is the October 15, 2009 deadline for congressional committees to utilize the budget reconciliation process that would allow them to fast-track a filibuster-proof health care reform bill through Congress. Three scenarios could lead to the use of budget reconciliation: (1) House Democrats are unable to achieve consensus on the Tri-Committee bill due to Blue Dog concerns about the bill's fiscal responsibility; (2) Senate Democrats are unable to merge the product of the Finance Committee bipartisan working group and the HELP Committee bill; or (3) House Progressive Caucus Democrats are unable to sign on to a bipartisan bill agreed to in the Senate. If the Reconciliation mechanism is used, health reform will become a Democrats-only bill with leadership struggling to achieve 218 votes in the House and 50 votes in the Senate (similar to the Budget Reconciliation bill of 1993). In general, the advantage of Reconciliation is its immunity from filibuster; the disadvantage is that bill opponents could use the "Byrd Rule" to strip out all "non-budgetary" policy provisions.


• The $2 billion projection for IMAC.--On July 25, CBO Director Elmendorf released a much discussed letter on an Administration proposal for an Independent Medicare Advisory Council (IMAC) that would allow the President to make changes in Medicare payment rates and policies based on recommendations from an advisory panel of experts--subject to Congress passing a law overturning the new rates or policies. The CBO letter states that "expanding the authority of the President to effect change in the Medicare program might lead to significant long-term savings in federal spending on health care." Oddly, the CBO letter then proceeds to suggest the seemingly contradictory assessment that enactment of an executive branch Medicare Advisory Council would yield savings of only $2 billion over the 2010-2019 period but "the probability is high that no savings would be realized...but there is also a chance that substantial savings might be realized." Unfortunately, the general media has focused on the "$2 billion" estimate rather than CBO's latter observation, i.e., "a chance that substantial savings might be realized."

If one reads the entire letter, CBO lays out specifications for an advisory council that would enable it to achieve "substantial savings." These include a "fall-back" mechanism for instituting across-the-board cuts in Medicare when cost saving targets are not reached. With such a mechanism "CBO believes such a council would identify steps that could eventually achieve annual savings equivalent to several percent of total spending on Medicare." CBO also recommends establishing statutory targets for Medicare cost reduction; and ensuring that the council includes health policy experts and is not "weighted toward medical providers." Text of CBO letter

• The August "deadline."--Much of the media has focused on Congress not passing a bill by President Obama's "August deadline." However, there was never any possibility of an issue this complex -- substantively and politically -- being completed by the August recess. The President pressed for House and Senate action by August as a means of lighting a fire under Congress. Legislation is unlikely to be completed until the Thanksgiving or Christmas recess -- which does not reflect failure; it reflects the reality of the bill's complexity.

On July 22, 2009, the House passed HR 2920, a bill to enact into law a new PAYGO (pay-as-you-go) requirement by a mostly party-line vote of 265-166. In general, Democrats supported the bill arguing it would keep current deficit projections from getting worse. Republicans generally opposed the bill arguing it wouldn't do anything to improve the high deficits already facing the nation.

During the course of the debate, Republicans offered a substitute amendment calling for discretionary spending caps, and limits on total spending and total deficits as a percentage of gross domestic product (GDP). The substitute was defeated 169-259. Summary of GOP substitute

Unclear if Senate will take up bill.--According to Congressional Quarterly, Senate Budget Committee Chairman Kent Conrad (D-ND) continues to oppose the bill because it would exempt the cost of four major items: extending the middle class tax cuts scheduled to expire in 2010; keeping the AMT from impacting middle class taxpayers; holding the estate tax at its current (2009) rate; and preventing scheduled cuts in Medicare payments to physicians. Moreover, Senate Democratic Whip Dick Durbin (D-IL) said "I can't see how we'd work that in before August and, man, there's so many things waiting for us when we get back."

President's PAYGO Announcement at the White House (C-SPAN)

Concord Coalition Issue Brief on Administration Proposal

CBO Analysis of HR 2920

Bill Text as Passed by the House

Currently pending are three major health reform measures at various stages of development:

1. A tri-committee House plan (Ways & Means/Rangel, Energy & Commerce/Waxman, and Education and Labor/Miller). CBO Cost Estimate JCT Revenue Estimate Letter to House GOP


2. A Senate HELP Committee Democratic plan (Kennedy-Dodd) was voted out of committee on July 15, 2009. HELP Committee Release
   


3. A Senate Finance Committee bipartisan plan (Baucus/Grassley) is under development. Other participants in the working group are Democratic Senators Conrad (who also chairs the Budget Committee) and Bingaman; and Republican Senators Snowe and Enzi (who is ranking on the HELP Committee). Republican Senate Orrin Hatch withdrew from the working group.

	Senate Finance	Senate HELP	House Tri-Committee
Individual mandate to purchase health insurance, w/ tax penalties for non-compliance		Yes	Yes
Prohibition on denying coverage due to pre-existing condition	Yes	Yes	Yes
Creates a "health insurance exchange" where individuals can compare a basic package of benefits and purchase coverage	Yes: state-based exchanges w/ a federal fallback	Yes	Yes
Subsidies for individuals to purchase insurance through the "exchange"	Provide "exchange credits" on sliding scale from 133-300% of FPL*	Up to 400% of FPL*	Up to 400% of FPL*
Regulate pricing and terms of private health insurance policies		Yes	Yes
Expand Medicaid eligibility?	For 100-133% of FPL, a choice between Medicaid & Exchange	Not addressed because Medicaid is Finance Comm. jurisdiction	Significantly expand Medicaid eligibility
Number of Uninsured Reduced by:			Uninsured reduced by 37 million (leaving 17 million, 1/2 of which are illegal aliens)
Public insurance plan to be one of the health exchange options?	Developing a state-based co-op model in lieu of public plan	Public option (Community Health Insurance Plan to be administered by a nonprofit entity)	Public option
"Super MedPAC"-- creates executive branch advisory council to recommend Medicare reforms to President (with authority to implement absent congressional override)	Yes	No	No
Employer Mandate: Employers required to provide coverage? Special provisions for small businesses?	Employers not offering insurance pay subsidy 50 employee exemption	Employers w/ more than 25 workers: provide insurance or pay $750 per worker 25 employee exemption	Provide coverage or pay 8% of payroll into trust fund Tax credits for small businesses
10-year cost   Net deficit impact over 10 years	Aiming for less than $1 trillion Aiming for deficit neutrality	$611 b (not including Medicaid expansion) Aiming for deficit neutral bill after "merging" w/ finance committee plan	$1.042 trillion $239 billion net deficit increase
Offsets to pay for the bill	Under discussion: (1) Medicare savings; (2) unspecified tax increases amounting to $320 billion	To be determined, but Dodd says no to health benefits tax	Surtax on upper income earners generating $583 b; Trigger--surtax amounts would increase in 2013 if spending savings not realized. Medicare and Medicaid reforms saving $219 b

*FPL: Federal Poverty Level

REVISED House Subcommittee (302(b) Allocations

Senate Subcommittee (302(b) Allocations

**Click on the dates below for links to bill summaries**

	House			Senate
Bill	Sub.	Comm	Floor	Sub.	Comm	Floor
Agriculture	6/11	6/18	7/9	*	7/7
CJS	6/4	6/9	6/18	6/24	6/25
Defense	7/16	7/22
Energy-Water	6/25	7/8	7/17	7/8	7/9	**
Financial	6/25	7/7	7/16	7/8	7/9
Homeland	6/8	6/12	6/24	6/17	6/18	7/9
Interior-Env	6/10	6/18	6/26	6/23	6/25
Labor-HHS	7/10	7/17	7/24	**
Legislative	6/9	6/12	6/19	*	6/18	7/6
Mil Con-VA	6/16	6/23	7/10	7/6	7/7
State-For Op	6/17	6/23	7/9	*	7/9
Transp-HUD	7/13	7/17	7/23	**

*polled out (no formal subcommittee vote)

**scheduled for action this week