According to a report by the Congressional Budget Office, H.R. 3962, the bill that Speaker Nancy Pelosi brought to the House floor last week costs $343 billion less than the bill that it replaced, H.R. 3200. How was this accomplished?
Here is the CBO report on the new House bill, H.R. 3962, and here is the CBO report for the previous version of the House bill, H.R. 3200. The new bill extends insurance coverage to 36 million people who are currently uninsured (a million fewer people than the previous bill) and, like the previous bill, it upgrades the insurance coverage of every American by prohibiting exclusions for preexisting conditions, abolishing lifetime limits in coverage, and requiring total coverage for preventive care.
These reforms will cost about $100 billion annually, or about $1 trillion over ten years. There are two principal components to this cost: approximately $40 billion more per year for Medicaid and CHIP, and $60 billion more per year in federal subsidies for individuals earning less than four times the Federal Poverty Level to purchase private or public health insurance through the Exchange.
The biggest change in the new bill is that the H.R. 3962 is expected to reduce the federal deficit by $104 billion over ten years, while the previous bill, H.R. 3200, would have increased the deficit by $239 billion. How were these savings accomplished?
The biggest losers under the new bill are physicians, to the tune of $245 billion over ten years. H.R. 3200 would have changed the SGR formula that threatens to impose a 20% reduction in physician's fees under Medicare. I addressed this topic in Posting Number 48 in this series. Senator Debbie Stabenow (D-MI) has introduced legislation in the Senate to address this problem, and the original House bill made this change as well. The new bill, H.R. 3962, drops the amendment to the SGR formula. This means that unless separate legislation is adopted this year, Medicare will reduce its payments to physicians by over 20% in 2010 and there will be additional annual reductions of about 6% in each of the next several years. Obviously this change has to be made. It would make sense to include this change in the reform bill.
The new bill also saves money by enrolling more people in Medicaid. Under the new bill, everyone earning less than 150% of the Federal Poverty Level will be eligible for Medicaid; under the old bill the qualification requirement had been 133% of the poverty level or less. The CBO estimates that as a result of this change four million more people will be insured by Medicaid instead of purchasing insurance through the Exchange. This saves money because it is cheaper to enroll people in Medicaid than it is to pay for them to purchase private insurance through the Exchange. Under the new bill direct subsidies to poor people to purchase health insurance will be reduced by $40 billion over ten years. The new bill also reduces the share that the federal government would pay under Medicaid from 100% to 91%. Because of this, the CBO estimates that over ten years the federal government will spend $13 billion less on Medicaid and CHIP under the new bill than under the old bill, despite enrolling four million more people.
The other significant change to the House bill is that it will tax fewer and richer people. The original bill raised the income taxes of individuals earning more than $280,000 and couples earning more than $350,000 annually. H.R. 3962 increases these threshholds and imposes a surcharge of 5.4% on individuals earning more than $500,000 and couples earning more than $1,000,000 per year. This will raise over $50 billion dollars annually and covers about two-thirds of the total cost of the bill. The rest of the cost is covered by reductions in Medicare payments to health care providers other than physicians and changes in the fee-for-service formula for payments to physicians under Medicare Advantage. The CBO estimates that these two changes will save about $40 billion annually.
In short, H.R. 3962 increases spending on health care for poor people by about $100 billion per year, imposes increased taxes and fees of about $60 billion per year on wealthy people, and reduces spending in various areas amounting to about $50 billion per year. Thirty-six million more people will have health insurance, and everybody's insurance coverage will be more comprehensive.
{ 7 comments… read them below or add one }
Professor,
If the "biggest losers" in the Pelosi Bill are physicians, then the quality of medical service will necessarily decline. Becoming a physician entails large front-end investment costs in time and money. Limiting the return will lead many of the most able and gifted to choose different career paths. It follows that there will be a decline in both the number and the quality of doctors.
At the same time the Pelosi Bill (indeed all proposed legislation) will expand coverage. Increasing demand and restricting supply will lead to rationing, or at a minimum, shortages and delays (which are disguised forms of rationing).
As you acknowledge, Congress can address this problem by enacting separate legislation so that medicare reimbursements to physicians are not cut by twenty percent. But then the purported savings disappear.
Thus, it should not be surprising that there is such strong opposition to the various versions of Obamacare now winding their way through Congress. The American People understand that there is no free lunch. Expanding coverage will lead to higher costs or rationing. Or both.
RE: "If the "biggest losers" in the Pelosi Bill are physicians, then the quality of medical service will necessarily decline."
Let me see if I understand this correctly….if doctors don't get their way in this reform war, they are going to reduce the level of care they provide to me? Sounds like it may be time to increase premiums for malpractice instead of decreasing them.
AND: "Becoming a physician entails large front-end investment costs in time and money."
No disagreement on that point. But let's look at it another way. How much less does it 'cost' to become a nurse practitioner or physician assistant? Do I really need to see a 'doctor' at the emergency room every time I skin my knee or have the same bad cold that everybody else at school has?
AND: "Limiting the return will lead many of the most able and gifted to choose different career paths."
What are they going to do instead….become lawyers? (Sorry, I couldn't help myself there!)
AND: "It follows that there will be a decline in both the number and the quality of doctors."
Not true. It could result in a few defectors from eldercare practices completely subsidized by Medicare. However, with a large number of boomers hitting 65 in the next few years, there shouldn't be a shortage of medical students preparing to care for us.
What is the track record of the CBO for projecting financial results? If it has a solid history of reasonable accuracy, perhaps we should ask it to propose a healthcare plan to save $Xbillion over Xyears. After all, aren't we all just interested in saving money without really caring how it is accomplished?
Dan,
To those who would ignore its precepts, Economics is a dismal science. Its very simple. If you want more of some economic good or service then you reward its production. The Obamanistas want to expand coverage of health care. Yet Pelosi's bill reduces the incentives for people to choose medicine as a career. To expand demand and reduce supply is futile policy.
You appear to be hopefully guessing that doctors will abandon a noble career just because there may be a small reduction in their income potential. I have yet to hear mass threats of desertion within the medical ranks if the current House version, or something close to it becomes law. As far as I'm concerned, any doctor who is just in it for the bucks is no more professional than an ambulance chasing attorney who tries to create loss where there is none. In addition, your recent choices of terms to describe the followers of President Obama's vision for healthcare improvements clearly show that you are more interested in seeing that vision fail than you are in seeing any true reform in a fractured system.
Not quite, Dan. Those already in the profession would have many barriers to exiting. My assumption (or "guess", if you prefer) is that the quality of the future doctors (and hence, medical care) would decline.
Your second point is perceptive. If the choice is between the Pelosi Bill (or something similar) and no legislation, then I would prefer the latter. Since, given the present make-up of Congress, that covers the universe of actual alternatives, any legislation passed by this Congress will not be, to use your term, "true reform".
Professor,
Can you tell me what assumptions the CBO is using in developing the cost estimates for healthcare reform (H.R. 3962)? Do these cost estimates contain a range? If yes, based on what data? I'm sure this is information is posted somewhere and I'd like to review it.
Additionally, what is the plan for implementation of H.R. 3962 since there is a strong push to pass it quickly? You know the old saying, "plan your work, and work your plan." Are key personnel (i.e., leadership) identified to develop and implement a plan? If individuals are identified, what is their experience and success in implementing new programs? Does Congress know what performance metrics will be used to measure implementation? I think these are critical points to successful healthcare reform.
Comment…Congress will quickly see that passing a healthcare bill is easy compared to implementation. I believe it was Albert Einstein who said, "a problem cannot be solved at the same level of thinking that created it." I hope H.R. 3962 (and subsequent implementation plans) are at a higher level of thinking than what has created the healthcare problem.