By John Reichard, CQ HealthBeat Editor
October 29, 2009 -- A preliminary analysis of the House Democratic health care overhaul proposal released Thursday by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) says its insurance coverage expansion provisions would cost $894 billion over the 2010–2019 period and reduce the federal deficit during that period by $104 billion followed by a "slight" deficit reduction in the second decade. The percentage of non-elderly legal residents with coverage would rise from 83 percent to 96 percent.
By 2019, the number of non-elderly Americans who are uninsured would be reduced by about 36 million, leaving about 18 million residents uninsured, about one-third of whom would be unauthorized immigrants.
The 96 percent coverage rate nearly meets the demand of the hospital industry that 97 percent be covered to fulfill an agreement with the White House agreeing to $155 billion in Medicare cuts over a 10-year period. Although that agreement was reached with Senate Democrats, the 97 percent is the figure hospitals are looking for in a final bill. Insurers also argue that a rate "in the high 90s" is one of the conditions that must be met for regulatory revisions guaranteeing the issuance of coverage to be workable.
Remarkably, the analysis concludes that a public option offered in new insurance exchanges would not charge lower premiums than private plans. The public option would attract only six million enrollees, the forecast says.
The analysis says "that estimate of enrollment reflects CBO's assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges."
The CBO added that "the rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees."
Lowering the tab for the overhaul proposal is a decision to shift some of the costs of expanding Medicaid to the states. In the original House health care overhaul proposal (HR 3200), the federal government would have paid 100 percent of those costs; in HR 3962, the revised proposal released Thursday, 91 percent of costs would be borne by the federal government. The analysis said that state spending on Medicaid would increase on net by about $34 billion over the 2010–2019 period as a result of the provisions affecting insurance coverage.
The $894 billion estimate for expanded insurance coverage "primarily reflects $425 billion in net federal outlays for Medicaid and CHIP [Children's Health Insurance Program] and $605 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending."
Another main element of the coverage provisions "that would increase federal deficits is the tax credit for certain small employers who offer health insurance, which is estimated to reduce revenues by $25 billion over 10 years. Those costs would be partly offset by a net increase in receipts, totaling $167 billion over the period, from two sources: penalty payments by uninsured individuals, which would yield receipts of about $33 billion, and penalty payments by employers under the play-or-pay requirement [requiring them offer coverage or pay penalties to fund coverage], which would total about $135 billion."
The analysis says that payment changes in Medicare, Medicaid and other federal health programs would cut spending by about $426 billion over the 2010–2019 period. Shrinking annual payment increases to providers in traditional Medicare would yield budgetary savings of $229 billion over 10 years.
The analysts found that there would be roughly 15 million more Medicaid enrollees than the number now projected for Medicaid and CHIP combined under current law. CHIP would no longer exist in 2019 under the bill.
In that year, about 30 million people would get coverage through insurance exchanges, including the six million enrolling in the public option. "Certain employers could allow all of their workers to choose among the plans available in the exchanges, but those enrollees would not be eligible to receive subsidies via the exchanges," the analysis notes. "CBO and JCT expect that approximately 9 million people would obtain coverage in that way in 2019," the analysis says.
The proposal would boost some payment rates in Medicaid to address difficulties with access to physicians in that program. Increasing Medicaid's payment rates to physicians and other health care professionals for primary care services would cost about $57 billion over 10 years.
The CBO says Medicare spending under the bill would rise at an average annual rate of roughly 6 percent during the next two decades—"well below the roughly 8 percent annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires."
The analysis concludes that "the long-term budgetary impact of HR 3962 could be quite different if those provisions generating savings were ultimately changed or not fully implemented." Richard Foster, Medicare's chief actuary, has cast doubt on whether Medicare payment reduction of the kind proposed in the House bill would prove to be politically feasible.
Late Thursday, House "Blue Dogs," the coalition of centrist Democrats in that chamber, sent a letter to the CBO seeking clarification of how the proposal would affect national health expenditures and the deficit in the long term. The letter said the analysis fell short in determining whether the proposal would "bend the curve" in health spending.
