CBO: Baucus reform bill would reduce federal budget deficit by $81B

Sen. Max Baucus, D-Mont. Image source: www.baucus.senate.gov

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have released a preliminary analysis of the Senate healthcare reform legislation, Chairman’s Mark for the America’s Healthy Future Act of 2009, estimating the bill would reduce federal budget deficits by $81 billion over the 2010–2019 period.

Among other things, the Chairman’s mark, issued in mid-September by Senate Finance Committee Chair Max Baucus, D-Mont., with its current amendments, would establish a mandate for most legal U.S. residents to obtain health insurance; set up insurance “exchanges” through which certain individuals and families could receive federal subsidies to reduce the cost of purchasing that coverage; expand eligibility for Medicaid; reduce the growth of Medicare’s 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 other changes to the Medicaid and Medicare programs and the federal tax code.

According to the CBO, its estimate includes a projected net cost of $518 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP) and tax credits for small employers. CBO said that those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources.

The office also estimated that the net cost of coverage expansions would be “more than offset” by the combination of other spending changes that would save $404 billion over the 10 years and other provisions that the JCT and CBO estimate would increase federal revenues by $196 billion over the same period.

In subsequent years, the collective effect of those provisions would probably be continued reductions in federal budget deficits. However, the organizations acknowledged that “those estimates are all subject to substantial uncertainty.”

On a preliminary basis, the CBO and JCT estimated that the proposal’s specifications affecting health insurance coverage would result in a net increase in federal deficits of $518 billion over fiscal years 2010 through 2019. That estimate primarily reflects $345 billion in additional federal outlays for Medicaid and CHIP and $461 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending.

According to the organizations, the other element of the coverage provisions that would increase federal deficits is the tax credit for small employers who offer health insurance, which is estimated to reduce revenues by $23 billion over 10 years. Those costs would be partly offset by receipts or savings totaling $311 billion over the 10-year budget window, from four sources:

• Net revenues from the excise tax on high-premium insurance plans, totaling $201 billion;
• Penalty payments by uninsured individuals, which would amount to $4 billion;
• Penalty payments by employers whose workers received subsidies via the exchanges, which would total $23 billion; and
• Other budgetary effects, mostly on tax revenues, associated with the expansion of federally subsidized insurance, which would reduce deficits by $83 billion.

By 2019, the CBO and JCT estimated that the number of non-elderly people who are uninsured would be reduced by about 29 million, leaving about 25 million non-elderly residents uninsured (one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal non-elderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent.

Also, about 23 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law.

Finally, the proposed co-ops had "very little effect" on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.

As a result, the CBO estimated that of the $6 billion in federal funds that would be made available, about $3 billion would be spent over the 2010–2019 period.