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CBO Says Senate Bill Would Cut Federal Health Care Payments $500 Billion

By John Reichard, CQ HealthBeat Editor

November 19, 2009 -- The newly released Senate Democratic leadership bill overhauling the nation's health care system would trim federal spending on Medicare, Medicaid and other federal health programs by $491 billion in 2010–19, according to a newly released estimate prepared by the Congressional Budget Office and the Joint Committee on Taxation.

Permanent reductions in the annual updates to Medicare's payment rates for most services in the fee-for-service sector—other than physicians' services—would account for $192 billion of those savings. Another big slice would come from payments to private health plans in Medicare. These "Medicare Advantage" plans would see cuts totaling $118 billion over the 10 years.

Hospitals would see a reduction totaling $43 billion in Medicare and Medicaid "disproportionate share hospital" payments, which are made to facilities treating large numbers of uninsured or underinsured patients.

The legislation also would establish an Independent Medicare Advisory Board, which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program's spending. The recommendations would take effect automatically unless blocked by legislative action. The estimate said "this arrangement would reduce Medicare spending by an additional $23 billion over the 2015–19 period."

Cuts to government health programs along with tax increases would be used to fund coverage of the uninsured. By 2019, CBO and JCT estimate, "the number of nonelderly people who are uninsured would be reduced by about 31 million, leaving about 24 million nonelderly residents uninsured," the analysis said. About one-third of the remaining uninsured would be unauthorized immigrants. The share of legal nonelderly residents with insurance coverage would rise to 94 percent from 83 percent now.

Inflation-adjusted Medicare spending per beneficiary "would increase at an average annual rate of roughly 2 percent during the next two decades—much less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear," CBO and JCT say.

The bill would cut the federal deficit $130 billion over the 2010–19 period, or by $77 billion not including "off budget" effects related to spending on Social Security and the U.S. Postal Service. In the second decade, the amount of deficit reduction would equal about one-quarter of a percentage point of the Gross Domestic Product. The bill "would probably continue to reduce budget deficits relative to those under current law in subsequent decades," the analysis says.

The estimate does not factor in added administrative costs involved in implementing the legislation, such as some $5 billion to $10 billion that would be required for added staffing in 2010–19 at the Centers for Medicare and Medicaid Services.

CBO and JCT project a net cost of $599 billion over 10 years for the proposed expansions in insurance coverage. That net cost reflects a gross total of $848 billion in subsidies provided through insurance exchanges, increased net spending for Medicaid and the Children's Health Insurance Program, and tax credits for small employers. Those costs are offset by tax revenues and other provisions.

CBO estimates that state spending on Medicaid, which would cover many of the uninsured by raising income eligibility to 133 percent of the federal poverty line, would increase by about $25 billion over the 2010–19 period.

The public plan would be a relatively small factor in insurance coverage. "Roughly one out of eight people purchasing coverage through the exchanges would enroll in the public plan . . . meaning that total enrollment in that plan would be 3 million to 4 million." States could pass laws opting opt of the public plan; the estimate assumes about two-thirds of the U.S. population would have a public plan available in their state.

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