CBO cost analysis of the Baucus health reform plan

Originally posted in MedPage Today

by Emily P. Walker, MedPage Today Washington Correspondent

In its much-anticipated cost estimate, the Congressional Budget Office (CBO) said the Senate Finance Committee’s healthcare reform bill would cost $829 billion over 10 years and begin to drive down the federal deficit after that first decade.

medpage-today The price tag is lower than Sen. Max Baucus’ (D-Mont.) previous estimate of $856 billion, which was made before the Finance Committee rolled hundreds of amendments into the bill, some of which drove down the total cost.

The bill would expand coverage so that 94% of all legal U.S. residents would have insurance by 2019, according to Doug Elmendorf, director of the CBO. That would still leave about 25 million nonelderly residents without insurance — about one-third of whom would be illegal immigrants.

After 10 years the bill would result in a deficit reduction of $81 billion, and continue to save the country money each year, the report said. While the CBO usually doesn’t venture into projecting costs past 10 years, Elmendorf said that after 2019, cost savings and revenues would grow faster than the cost of expanding insurance.

The CBO report is good news for Baucus, chairman of the Finance Committee, because it backs what he’s been saying all along: That the bill would cost under $1 trillion, that it would save money after a decade, and that it would expand insurance to people who don’t have it.

“Our balanced approach to health reform has paid off yet again with the news today that the [bill] remains fully paid for, begins to reduce the federal deficit within ten years, and makes significant reductions in federal debt over the next several decades,” Baucus said in a prepared statement.

While the committee finished work on the bill last week, Baucus agreed to hold off on a vote to send the bill to the Senate floor until the CBO provided an updated estimate. Republicans on the committee tried to get Baucus to promise that they’d have 72 hours to ponder the CBO estimate before voting on the bill, but Baucus didn’t explicitly agree to that.

The largest cost in the bill — $461 billion — would go toward providing subsidies to low-and moderate-income people. Those who earn up to 400% of the federal poverty level ($88,200 for a family of four), would receive subsidies from the federal government to offset the cost of buying health insurance.

Another big chunk of the price tag — $345 billion — would go toward expanding Medicaid and the State Children’s Health Program.

Under the bill, Medicaid eligibility would be expanded to include those who earn up to 133% of the federal poverty level. (For those who earn between 133% and 200%, individual states could choose whether to provide new federally-funded, state-level insurance plans). The expansions would result in about 14 million more Medicaid recipients than current projections call for.

By expanding Medicaid eligibility and by requiring everyone to purchase insurance, among other measures, the bill would expand coverage to an additional 25 million people.

Provisions in the bill relating to small employers also raise the cost, Elmendorf said. The federal government would spend $23 billion in tax credits to businesses with fewer than 25 employees who make an average of less than $40,000 annually.

Under the bill, an employee would be required to buy into an insurance plan offered by his or her employer, unless the premiums for the plan would eat up more than 8% of the employee’s salary. In that case, the employee could buy from an exchange and would likely be eligible for some government assistance to offset the cost.

The $23 billion in tax credits to small businesses would be partly offset by three money-makers, according to the CBO: taxing expensive “Cadillac” plans (which cover an estimated 8% of taxpayers); charging employers penalties if their workers receive tax credits to buy insurance in the “exchange”; and other “tax revenues” that will come along with expanding insurance.

Notably, health insurance cooperatives, which were touted as an alternative to a public option and a potential cost saver, would have very little effect and probably not be used by many states.

The report concluded that these cooperatives “seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.”

The CBO report also said the bill would:

* Save $162 billion by reducing annual updates to Medicare’s fee-for-service rates. These reductions would not apply to physician’s services.
* Save $117 billion by allowing the Centers for Medicare and Medicaid Services to set payment rates in Medicare Advantage plans based on the average bids of private insurance companies who are competing to offer plans to Medicare beneficiaries. (The Advantage plans are paid, on average, 14% more than traditional Medicare plans.)

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