By Drew Armstrong, CQ Staff

October 7, 2009 -- A new Congressional Budget Office (CBO) estimate puts the cost of the Senate Finance Committee's health care overhaul at $829 billion over a decade, well under the $900 billion goal the committee had set.

The legislation also would reduce the federal budget by $81 billion over that period, CBO said.

The proposal would cover 94 percent of legal residents by 2015, reducing the number of uninsured in the United States by 29 million, from 46.3 million. Roughly a third of the 25 million people who would remain without coverage would be illegal immigrants.

Minutes after getting the analysis, Finance Committee Chairman Max Baucus, D-Mont., took to the Senate floor to tout it.

"The report is good news," he said, calling the legislation "fully paid for" and highlighting sections of the CBO estimate that said his draft proposal would reduce the federal budget deficit in the second 10 years, too, should it become law.

But it is not Baucus's reaction that will count, but rather the views of panel Republican Olympia J. Snowe of Maine and fiscally conservative Democrats both on and off the Finance Committee.

How they view the CBO's assessment will be crucial when Finance votes on the legislation.

And CBO will be called upon for yet another assessment once Majority Leader Harry Reid, D-Nev., melds the Finance bill with a far different version (S 1679) approved this summer by the Health, Education, Labor and Pensions Committee.

"This legislation is a smart investment on the federal balance sheet, and it's an even smarter investment for American families, businesses and our economy," Baucus said.

The latest estimate is a change from CBO's estimate of Baucus's original proposal, which the agency said would cost $774 billion over a decade, but with only $49 billion in deficit reductions.

The largest cost in the bill, by far, is the expansion of insurance coverage to those now lacking it. The bill would expand Medicaid eligibility to people with incomes up to 133 percent of the poverty level, provide refundable tax credits to help people buy insurance, and more tax credits to help small businesses help their employees get coverage. The net cost of those provisions would be $518 billion over a decade.

Part of the $89 billion budget surplus comes from a revised estimate by the Joint Committee on Taxation, which had previously made an error estimating how much revenue would be raised from fees levied on health insurance companies, drug makers and medical device manufacturers. The fees would raise $29 billion more over a decade than originally been estimated. But because of how the fees are structured, they would not actually cost the affected industries more.

One proposal that Baucus has embraced—using consumer-owned "co-ops" to compete with private insurance plans instead of a government-run "public option"—would not have a significant impact on the insurance market or the bill's costs, according to CBO. Insurance policies offered by co-ops would be sold through an “exchange” marketplace set up and monitored by the government.

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

By Drew Armstrong and Kathleen Hunter, CQ Staff

Can a "public option" pass in the Senate when the chamber starts voting on its health care overhaul—and if so, what would it look like?

Those are questions facing Senate Majority Leader Harry Reid and his staff as they work to craft a health care bill to bring to the floor in the coming weeks.

To get the bill to the president, Reid, D-Nev., will have to carefully thread the legislation through a number of procedural hurdles, holding his caucus together when he has to move forward, and letting some members break away when he can afford to lose them.

Along the way, Reid will have to assuage the left-leaning members of his party who are fierce advocates of a government-run alternative, while not losing the support of too many of the handful of moderates who oppose the types of public option proposals that have been floated in congressional committees so far.

At each point in the process, moving the legislation may demand a slightly different balance of policy in the bill to keep it alive.

Senate Democratic leaders are working with the White House—which strongly supports a public option—to combine bills by the Finance Committee and the Health, Education, Labor and Pensions Committee, with floor debate possible as soon as next week. (The Finance Committee is expected to vote to approve its bill this week.)

The immediate dilemma facing Reid is whether to include a public option in the merged bill and what form that public option would take.

Talking with reporters Oct. 1, Reid stressed that a public option could exist in multiple forms.

"I favor a public option...we're going to do our very, very best to have a public option," he said. "But remember, a public option is a relative term. There's a public option, there's a public option and then there's a public option. We're going to look at each of them."

The first barrier will be the most difficult. To invoke cloture on the bill and block a Republican filibuster, Democrats will likely need every one of their 60 caucus votes. On amendment and passage votes after cloture, the threshold falls to a simple majority.

Technically, the public option could be put into the bill at any time—as soon as it is introduced formally and before any votes are taken, or as late as a last-minute insertion during House-Senate conference, without the Senate having approved it before then.

It is also possible that Reid would first try to introduce a bill with a public option, understanding that it might fail—and give Democrats the opportunity to blame Republicans for blocking it.

If that happens, exactly when the public option goes into the bill gets far more complicated.

"We are going to have a public option before this bill goes to the president's desk," Reid said to Nevada voters during a conference call on Oct. 1, according to the Las Vegas Review Journal.

But exactly when the public option goes into the bill is far more complicated. Reid's two top lieutenants—Richard J. Durbin and Charles E. Schumer—have both said in recent days that they think there is broad support within the Democratic caucus for a public option and are lobbying the caucus to expand that support in advance of the upcoming floor debate.

"I have talked to every one of our more conservative members and they are open to some form of public option," said Schumer, D-N.Y.

But including a public option in a merged base bill could be dicey. To win the cloture vote on the bill, Reid and other top Democrats have almost no margin of error. With exactly 60 votes, they can overcome a Republican threat to block the bill but cannot afford to lose a single member.

Finance Chairman Max Baucus, D-Mont., insists there are not 60 votes, an analysis backed up by moderates such as Evan Bayh of Indiana, Mary L. Landrieu of Louisiana and Ben Nelson of Nebraska, who largely oppose the public option.

Democrats are hoping that Olympia J. Snowe of Maine will offer a crucial Republican vote for cloture, which would offer a small margin of error as well as at least a sheen of bipartisanship. But that is only one vote, and Democrats could lose several.

"It would be very difficult for it to get 60 votes with a bill that has the public option in it," Nelson said. "Unless it's something that I can support, I'm not going to support it...Otherwise, I'm in a position of having put my procedural votes on auto-pilot, and I have no plan to do that."

Analysts agree. "The last thing the leader would want to do is have the public option in the composite bill...because the composite bill would fall," said Bill Hoagland, chief lobbyist for the health insurer CIGNA.

"The first question is whether the public option will be included in whatever bill the majority leader brings up," said Alec Vachon, a health care consultant with Hamilton PPB. "Likely no, because they don't want to give a reason for any Democrat to vote against cloture...Then it will be up for advocates of the public option to offer amendments."

And from a political perspective, Democrats may want to protect vulnerable moderates in swing states—like Blanche Lincoln of Arkansas—from a vote on the public option until as late in the process as possible.

"You need them for cloture, so you want to get the most inoffensive bill to the floor," Vachon said.

If Reid includes a watered-down public option, it would fall to liberal Democrats like Schumer and John D. Rockefeller IV of West Virginia to muster the votes for a stronger version, post-cloture. "It'll be up to Rocky and Schumer to offer public option amendments," Vachon said.

That would spare lawmakers like Lincoln from having to vote for it. "There are those moderate Democrats in sensitive elections next year who would probably prefer not to vote on it in the Senate," Hoagland said.

Rockefeller and Schumer have played that game once already, in the Finance Committee. They offered public option amendments that were rejected by the panel, including Lincoln. The committee is generally considered more conservative than the Senate as a whole.

"This was the toughest terrain for us, the Senate Finance Committee," Schumer said after the Sept. 29 committee vote. "It's easier on the Senate floor, and then it gets easier still in conference."

The best chance seems to be by amending it into the legislation post-cloture, when Democrats only need a simple majority.

It's an approach Nelson appears to favor over including the public option initially. "It's much harder to strip something from a bill," Nelson said. "I think the public option on the front end of the bill is very detrimental to the passage of the bill."

The House has recently given Senate advocates of the public option some hope. House Democrats say they have won over conservative and moderate Democrats there.

Rep. Diana DeGette, D-Colo., a deputy whip for Democrats, has spent recent days meeting with the New Democrat and Blue Dog caucuses to shore up their support for the idea.

"Based on my efforts the last couple of weeks, we do have the votes for the public option in the House," she said.

Four of the eight Blue Dogs on the House Energy and Commerce Committee voted for the House bill (HR 3200) out of committee, after securing a compromise that included not having the public option base its rates on Medicare.

DeGette said she has been talking with Durbin, D-Ill., about sending a handful of the House moderates to try to convince on-the-fence senators to support the public option.

Durbin said he is still trying to win over those moderate senators. "I've talked to some of them and heard their concerns," he said. "They are worried about reimbursement questions and we have to address those questions if we ever want to win their support, but I think that is a legitimate feeling about the public option that can be addressed."

By Alex Wayne, CQ Staff

October 7, 2009 -- House Democratic leaders, desperate to cut the cost of a health care overhaul, are considering steps as drastic as increasing the size of the legislation's proposed expansion of Medicaid, lawmakers said Wednesday.

It turns out that covering people through Medicaid is cheaper than providing them subsidies to buy health insurance, according to the Congressional Budget Office (CBO).

"The irony is, what CBO is telling us is if you expand the number of people getting Medicaid, you reduce the cost of the bill," said Rep. Anthony Weiner, D-N.Y.

So Democratic leaders suggested to their caucus, in a meeting Wednesday, that they could increase the Medicaid expansion to cover people earning up to 150 percent of the poverty level, Weiner and other members said. Right now the House version of the legislation (HR 3200) would cover people earning up to 133 percent of the poverty level, or about $29,000 for a family of four.

The proposal to expand Medicaid is controversial. The program pays doctors and other health providers such low rates that many of them refuse to accept patients covered by the program. Increasing the number of people enrolled in Medicaid without improving its payments would exacerbate that problem.

"I have some concerns about that," said Allyson V. Schwartz, D-Pa. "Medicaid rates are so low in Pennsylvania."

Democratic leaders hope to soon settle on a combination of policies in the bill that will draw the support of most of their caucus, so that they can pass the legislation through the House "in the coming weeks," said Majority Leader Steny H. Hoyer, D-Md.

At Wednesday's meeting of the caucus—one of dozens that Democratic leaders have held since the beginning of the summer to discuss the health bill—Hoyer and Speaker Nancy Pelosi, D-Calif., began presenting ideas that the leaders hope can bridge vast policy differences between liberals and more moderate Democrats.

But Hoyer acknowledged that much work remains. "We're not in the home stretch yet," he said.

They seemed to have made little headway with moderates, in particular.

"This is one of the lesser productive caucuses that I've been to," Stephanie Herseth Sandlin said afterward. The South Dakota Democrat is a member of the Blue Dog Coalition, a group of fiscally conservative Democrats.

Sandlin complained that the caucus spent a great deal of time discussing how to structure a government-run insurance program that would compete with private insurers—a "public option"—even though it appears the idea will not be able to pass the Senate.

Democratic leaders, she said, talked about the idea in terms of staking out a "bargaining position" in a future conference committee with the Senate.

"This idea of trying to get 'bargaining position' really falls on deaf ears for a lot of us," Sandlin said. "This is about what's possible in both chambers."

Bart Stupak, D-Mich., another moderate, said he had heard nothing in the caucus meeting that would lead him to support the bill. And he said he did not sense that Democrats as a whole were moving toward a consensus on the bill.

"We're Democrats," he said. "We don't agree on anything."

By Joseph J. Schatz, CQ Staff

October 7, 2009 -- As Democratic leaders on both sides of the Capitol work to piece together health care bills for floor votes in the coming weeks, allies of organized labor in the House are weighing in strongly against a Senate Finance Committee plan to tax so-called Cadillac health insurance plans.

Warning at a press conference Wednesday that the Senate Finance Committee's proposal to assess a 40 percent tax on high-value insurance plans is a "non-starter," Rep. Joe Courtney, D-Conn., sent a letter signed by 157 House Democrats, including several senior members of the Ways and Means Committee, to Speaker Nancy Pelosi, D-Calif., urging her to reject excise tax proposals.

Pelosi, who met with Ways and Means Democrats Wednesday afternoon on health care, has signaled an openness to the excise tax. But Chris Van Hollen, D Md., a panel member who also heads the Democratic Congressional Campaign Committee, stressed that the proposal is "not a preferred option" and promised that if the House leadership takes that approach, it will look nothing like the Senate plan. House Democratic leaders and tax writers are currently tinkering with their preferred financing mechanism, a surtax on wealthy Americans.

The excise tax plan, pushed by Senate Finance Chairman Max Baucus, D-Mont., is part of a broader bill that would cost $829 billion over 10 years, according to a Wednesday scoring by the Congressional Budget Office. The Finance Committee could approve its draft bill as early as this week, sending it to the Senate floor later this month.

The tax has raised concerns among some senators, but it is a central part of Baucus' plan to raise the revenue needed to pay for an expansion of coverage to the uninsured and other key parts of his bill. His effort has been encouraged by the White House.

Still, the 157 members signing the letter to Pelosi represent a majority of the House Democratic Caucus. And at the news conference, Courtney and other Democrats argued that the tax would hit workers—such as firefighters and police officers, who are often members of unions—whose plans cost more because they work in high-risk industries, not necessarily because they offer more generous benefits. The Senate bill, as amended, does set higher thresholds before the tax would take effect on plans for retirees and workers in high-risk industries.

Several lawmakers suggested that the tax might go against President Obama's pledge not to raise taxes on anyone making less than $250,000 a year, even though it would be imposed on insurance providers, not directly on workers.

The letter also expresses concern that the "transition relief rule," designed to minimize the impact of the tax on states with high health care costs, is inadequate.

Lobbying Push
The missive came as state and local union leaders flew into Washington to lobby lawmakers on the health care bill. Harold A. Schaitberger, general president of the International Association of Fire Fighters, appeared at the press conference and said that the tax could become similar to the alternative minimum tax (AMT) and trap more and more middle class taxpayers each year under the Finance Committee plan.

But while the expansion of the AMT, which was originally targeted at the wealthiest Americans, was not intended by lawmakers to achieve any policy goals, Senate tax writers designed the excise tax to expand over time. The provision is supposed to encourage companies to reduce the value of plans they offer workers as a way to control health care costs.

The Ways and Means, Energy and Commerce, and Education and Labor committees have all approved pieces of the House health care overhaul (HR 3200), and leaders are working to consolidate those pieces into a single measure in the coming days.

"This tax will not, it's safe to say, be in the House bill," Rep. Sander M. Levin, D Mich., said. But Courtney said members are "very concerned" that the language could end up in a final conference report given support for the idea in the Senate and the White House.

Still, the letter signers were wary of drawing too firm a line in the sand, and would not pledge to vote against an eventual health care bill that includes the tax. Rep. Pete Stark, D-Calif., said the letter was meant to "encourage changes to the bill."

The Ways and Means Committee-approved health care package does not include a similar tax; rather, it would impose a surtax on adjusted gross incomes above $280,000 for individuals and $350,000 for married couples. Higher rates would apply at higher levels of income.

But many Democratic lawmakers—some of whom also signed the Courtney letter—objected to the surtax, and Pelosi has said she would like to see it reduced.

Pelosi, however, downplayed any potential difficulty in finding the needed revenue, saying House Democrats will keep the cost of the House bill to $900 billion. "We're coming down to $900 billion in the coverage, so we can go up on the [surtax] threshold, because we're taking out $95 billion out of the bill," Pelosi said after meeting with Ways and Means Democrats.

Van Hollen said after the Thursday meeting that Ways and Means Democrats are tinkering with the income thresholds on the surtax. Chairman Charles B. Rangel, D-N.Y., said the Democratic caucus will be discussing the revenue side of the health bill on Thursday and will send the bill to CBO for scoring on Friday.

Richard Rubin contributed to this story.

By John Reichard, CQ HealthBeat Editor

October 9, 2009 -- The Congressional Budget Office on Friday unearthed a pretty big chunk of scorable savings—legislative language that would reduce the federal deficit by $54 billion over 10 years—but it won't look like gold to Democrats even as they face growing pressure to find more funds to cover the uninsured.

CBO said the savings would come from revisions such as a cap of $250,000 in damages for pain and suffering; a cap on punitive damages of $500,000 or two times the award for economic damages, whichever is greater; and a one-year statute of limitations for adults and three years for children from the date of discovery of an injury.

Democrats repeatedly blocked legislation with similar provisions during the Bush administration when Republicans controlled the House and Senate.

National adoption of those provisions—and others, including subtracting from damage awards various types of insurance benefits, and a "fair share" rule saying a defendant in a lawsuit would only be liable for the percentage of damages equal to his or her share of responsibility for the injury—would not only reduce malpractice insurance premiums but also lessen "defensive medicine" by doctors, according to an Oct. 9 letter from CBO Director Douglas W. Elmendorf to Sen. Orrin G. Hatch, R-Utah.

Gleeful Republicans rained down e-mail on reporters noting the findings and calling on Democrats to amend health overhaul legislation to adopt the revisions. "It's a no-brainer to include tort reform in any health care reform legislation," said Iowa Sen. Charles E. Grassley, the top Republican on the Senate Finance Committee. "That's not chump change," he pointed out concerning the $54 billion figure.

"CBO has confirmed that meaningful malpractice reform would cut costs and reduce the deficit," said Wyoming Sen. Michael B. Enzi. "It's time to listen to the American people and enact real medical malpractice reform," said Enzi, the top Republican on the Senate Health, Education, Labor and Pensions Committee.

"It is unfortunate that Democrats have chosen to shield their friends in the trial lawyer lobby instead of including these cost saving measures in their bill," said Rep. Dave Camp, the top Republican on the House Ways and Means Committee.


Hatch said, "This is an important step in the right direction and these numbers show that this problem deserves more than lip service from policy makers. Unfortunately, up to now, that has been all the president and his Democratic allies have been willing to provide on these issues."

CBO previously estimated the impact of malpractice revisions on malpractice insurance premiums but shied away from scoring savings relating to defensive medicine—the ordering of unnecessary tests and procedures purely as protection in potential lawsuits—because of what it said was "inconsistent" research.

But citing recent research that he said appears to clear up earlier contradictory findings, Elmendorf said the package of revisions would reduce total national health spending by 0.5 percent in 2009. Of the 0.5 percent, 0.2 percent would be from lower medical liability premiums and 0.3 percent would be from less use of health care services by doctors.


That would translate to deficit reduction of $54 billion over 10 years, including $41 billion in lower spending in the Medicare, Medicaid, Children's Health Insurance Program, and Federal Employees Health Benefits Program. The other $13 billion stems from a calculation that lower health costs from the malpractice revisions would lead to higher taxable wages for workers and therefore an increase in federal revenues.

Democrats have argued that revisions of the type favored by Republicans would lead to inadequate damage awards and fail to sufficiently deter malpractice. They have expressed some willingness to consider other alternatives, however.

The amended overhaul proposal offered by Senate Finance Committee Chairman Max Baucus, D-Mont., includes nonbinding "sense of the Senate" language indicating states should be "encouraged to develop and test alternatives to the current civil litigation system" pertaining to malpractice.

Finance Committee aides did not respond to requests for comment on whether Baucus would consider tougher language in light of the CBO score. Baucus is under pressure from hospitals to find more funding to cover the uninsured in light of another CBO analysis concluding that 94 percent of legal and unauthorized U.S. residents would have coverage under his plan. Hospitals say an agreement they made with Baucus to take $155 billion in Medicare cuts over 10 years to fund wider coverage calls for 97 percent of those residents to be covered.

Trial lawyers, who are a significant source of funding for the Democratic Party, issued a statement scoffing at the CBO estimate. "In total, tort reform would provide a paltry 0.5 percent savings, while putting patients at risk," said Anthony Tarricone, president of the American Association for Justice.

By Drew Armstrong, CQ Staff

October 9, 2009 -- Some health care industry groups are becoming more vocal in their criticism of Congress' health care overhaul, and in the wake of a new cost and coverage estimate this week are saying that the terms of the deal have become unfair.

The industry has been asked to provide billions of dollars to the overhaul effort via fees on their companies, as well as accept new regulations—like one on insurers that would prohibit them from excluding people from coverage based on pre-existing conditions.

In return for those concessions, hospitals, insurers and drug makers expect to get millions of new customers — previously uninsured people who would get insurance either through government programs or who would buy coverage with new tax credits. That was enough, it seemed, to keep the health care industry's criticism muted.

But that's not necessarily the case any more. Wednesday's Congressional Budget Office (CBO) analysis of Finance Committee Chairman Max Baucus' proposal estimated that the draft would cover 94 percent of legal residents under age 65. While an improvement, that still leaves a substantial population of uninsured illegal immigrants and others without coverage.

"In terms of any definition of health reform, the coverage level is not sufficient," said Chip Kahn, president of the Federation of American Hospitals, which represents for-profit hospitals. Kahn said that the deal his group made with the Obama administration was to cover 97 percent of eligible Americans under age 65.

He also says that the 94 percent figure isn't representative of the actual picture of the uninsured, and that the real figure has to take into account people like uninsured illegal immigrants, who may not be eligible under the bill but still use doctors, hospitals and other health care services.

According to Wednesday's CBO estimate, in 2010, 81 percent of people in the United States will be covered—a percentage that includes illegal immigrants and others not eligible. And while the bill would eventually cover 94 percent of eligible, legal residents under 65, when illegal immigrants and other non eligibles are included—people who still use health care services—that figure drops to 91 percent. While a 91 percent coverage rate would cut the number of actual uninsured by more than half, it likely does not solve what industry groups saw as the problem in the first place—that the existence of a substantial number of non-paying uninsured patients drives costs up for the insured, costs health care providers money, and skews incentives around the entire system.

Insurance Industry
The insurance industry is also concerned.

Baucus' bill contains fees on health insurers totaling $45.3 billion over a decade. They would also not be allowed to prohibit people with pre-existing conditions from getting insurance, and would be strictly limited in how widely they are allowed to vary premiums based on things like age. In return, they were expecting to get millions of new customers through the expanded coverage the bill would provide.

Robert Zirkelbach, spokesman for America's Health Insurance Plans, doubts the coverage levels will be as high as CBO has estimated. And the result will be higher-than-expected premiums that will keep some uninsured people from buying coverage.

"The more people you leave out of the system, the more it drives up costs for everybody in" it, because hospitals, doctors and other providers pass on the costs of treating the uninsured to insurers, who pass it on to consumers, said Zirkelbach.

That problem already exists in the current health care market, of course, and covering some currently uninsured people will likely decrease it. But not to the extent that Zirkelbach says is necessary. "Unless you get everybody in the system, the market reforms don't work," said Zirkelbach. The insurance industry would like to see a mandate that would require people to buy coverage strengthened.

Baucus seemed unconcerned by the hospital industry's comments, and did not say that other industries had voiced similar issues to him. "All the groups, they're still on board," he said.

A lobbyist with ties to a physician lobby group said that he thought Kahn might be complaining about the bill publicly now in order to win other concessions. "They still got a very good deal," said the lobbyist. "The revenue increase they're looking at relative to their contribution is a big net win, even at 94 percent" coverage, said the lobbyist.

Other Senate Democrats admit they could do more to boost coverage levels in the bill, though they may have different reasons than the industry lobbies.

"No, it's not enough," said Sen. John D. Rockefeller IV, D-W.Va.

"It represents a dramatic improvement. Is there more way to go here? Yeah," said Sen. Kent Conrad, D-N.D.

Both lawmakers sit on the Finance Committee. Rockefeller, in particular, has been part of a bloc of Democrats aggressively pushing to lower the penalties on individuals who do not buy insurance under a mandate in the bill that would require it. Those same lawmakers have also pushed for greater subsidies to help people buy coverage.

The subsidies make insurance more available for people, but the lower penalties have the opposite effect that fewer people actually purchase insurance.

But other industries that have been part of the deal making downplayed any impact of the coverage numbers. "Ninety-four percent coverage is a huge step forward," said Ken Johnson, spokesman for the Pharmaceutical Research and Manufacturers of America. "We're still convinced that the Senate Finance Committee's bill is the best blueprint for comprehensive health care reform."

Johnson said that under the drug industry's projections, the health care overhaul bills being proposed by Congress will not have an enormous effect on their financial results. "Our best estimate of the net impact of health reform on industry revenues is modest, ranging from a potential upside of 1 percent to a loss of 2 percent."

The lobbyist with physician group ties said that doctors did not have the same level of concern that the hospital and insurer groups were expressing. "I think the coverage numbers are very important to them, but its balanced with other priorities," said the lobbyist. "It's not the only objective."