Health Care Reform

CBO Revised Estimate of the Budgetary Effects of the Senate-Passed Health Bill

Washington, D.C.–(ENEWSPF)–March 11, 2010.  The Congressional Budget Office (CBO) has just released an estimate of the budgetary effects of the health bill, H.R. 3590, that passed the Senate on December 24. Today’s estimate differs from the estimate for a slightly earlier version of the legislation that we released on December 19 in that it encompasses all of the amendments that were adopted by the Senate, reflects a revised assumption about its enactment date, and incorporates some technical revisions. Like the December 19 estimate, this estimate is based on CBO’s baseline projections from March 2009. We and the staff of the Joint Committee on Taxation (JCT) prepared this updated estimate in preparation for further consideration of health care legislation. However, the changes we have made do not result in an estimate that differs substantially from the earlier one.

CBO and JCT now estimate that, on balance, the direct (mandatory) spending and revenue effects of enacting H.R. 3590 as passed by the Senate would yield a net reduction in federal deficits of $118 billion over the 2010–2019 period. (Direct spending—as distinguished from discretionary spending—is spending that stems from legislation other than appropriation acts.)  In our earlier estimate, the budgetary impact was a net reduction in deficits of $132 billion.

The gross cost of the proposed expansions in insurance coverage over those 10 years is now projected to be $875 billion, reflecting subsidies provided through insurance exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers. Those costs are partly offset by revenues from an excise tax on high-premium insurance plans and net savings from other coverage-related sources, leaving a net cost of $624 billion for the coverage provisions. Other provisions affecting direct spending save $478 billion, on net—mostly in Medicare—and other provisions affecting revenues reduce the deficit by $264 billion, on net. Thus, the net effect on deficits of the bill as a whole equals $624 billion less $478 billion less $264 billion, or a reduction of $118 billion over the 2010-2019 period. In total, CBO and JCT estimate that the legislation would increase outlays by $355 billion and increase revenues by $473 billion between 2010 and 2019.

CBO has not completed an estimate of all of the discretionary costs that would be associated with the legislation. Those costs would depend on future appropriations and are not included in today’s estimate of the direct spending and revenue effects of the bill. As indicated in CBO’s earlier estimate, such costs would probably include an estimated $5 billion to $10 billion over 10 years for administrative costs of the Internal Revenue Service and at least a similar amount for expenses of the Department of Health and Human Services. CBO has also identified at least $50 billion in specified and estimated authorizations of future discretionary spending for a number of grant programs and other provisions of the legislation; whether some or all of those costs would be incurred would depend on future appropriation legislation.

Other elements of the analysis that CBO and JCT provided on December 19 have not changed significantly:

  • Although CBO and JCT have not updated their estimates of the likely impact of the legislation on health insurance premiums, that impact would probably be quite similar to the one estimated for an earlier version of the legislation.
  • CBO expects that the legislation, if enacted, would reduce federal budget deficits over the decade after 2019 relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of GDP. That judgment is unchanged from CBO’s previous assessment, and the imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.
  • Under the legislation, federal outlays for health care would increase during the 2010–2019 period, as would the federal budgetary commitment to health care (a term that CBO discussed earlier). CBO now estimates that the federal commitment would increase by about $210 billion over that period, rather than by $200 billion as previously estimated. In subsequent years, however, the effects of the legislation that would tend to decrease the federal budgetary commitment to health care would grow faster than those that would increase it. As a result, CBO expects that the legislation would generate a reduction in the federal budgetary commitment to health care during the decade following 2019; that judgment is unchanged from CBO’s previous assessment.