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Health Bill's Deficit Reduction Rests on Future Policy Changes

By Alex Wayne, CQ Staff

March 18, 2010 -- To achieve huge projected deficit reductions in its second decade, Democrats' final health care bill assumes two major future policy changes that may never come to pass.

In 2019, according to a Congressional Budget Office report on the bill, Democrats propose to suddenly slow the growth of subsidies intended to help people purchase insurance plans through new state-based marketplaces called exchanges. In the same year, they would speed up the growth of an excise tax on high-cost insurance plans.

According to the CBO report, the subsidies would average about $5,200 per person in their first year, 2015. They would grow by $100 in 2016, $200 in 2017 and $300 in 2018 – but the growth slows to $200, on average, in 2019.

Meanwhile, the premium costs that would trigger the excise tax would grow by the rate of inflation plus one percentage point in 2019, the first after it takes effect. But in 2020, according to the CBO, the threshold to trigger the tax would grow at general inflation, as opposed to the Senate bill, which retained the extra percentage point. That difference would cause the reach of the tax to expand faster.

The CBO says that the two changes are a big reason the final health bill would achieve huge reductions in the deficit in its second decade —between one-quarter and one-half of a percent of gross domestic product, which Democrats say amounts to $1.2 trillion.

If provisions of the health bill aimed at controlling the growth of health care costs are successful, the two policy proposals might not be an issue. But if not, future Congresses will likely come under considerable political pressure to increase subsidies and slow the growth of the excise tax.

Rep. Joe Courtney, D-Conn., who led House Democrats' opposition to the excise tax, said the latest version of the proposal would not cause him to vote against the bill. Delaying the start date until 2018 for all plans would allow enough time for the purchasing exchanges to be established and for all plans to have the option to use those exchanges, which should help contain costs by encouraging competition and increasing risk pools.

"Really, it would become a very tiny slice of America that would really be exposed to the tax," Courtney said on Thursday. "And if it's not, four Congresses and a new president will have a chance to intervene."

One change Democrats plan for the health bill could reduce the likelihood that health care costs are brought to heel. According to the CBO, the final bill would weaken a proposed commission on Medicare payment policies. The CBO says that savings from the board would total only $13.3 billion in its first 10 years — $14.7 billion less than under the Senate bill.

But Democrats would more than make up for that loss of revenue by extracting bigger savings from the Medicare Advantage program. The CBO says that the final bill would cut federal funds for private Medicare Advantage plans by $132 billion over ten years, $13.7 billion more than in the Senate bill. And the bill would yield an additional $70.4 billion in savings from a line item that the CBO labels — without explanation — "Medicare Advantage interactions." That is $53 billion more than in the Senate bill.

It would cut the growth of Medicare payments by $157 billion, $9.9 billion more than the Senate bill. Some of those additional savings would be used to make bonus Medicare payments to primary care physicians — $8.3 billion over 10 years, according to the CBO.

The final bill also would not as severely reduce payments to hospitals treating high numbers of uninsured patients — so-called disproportionate share hospitals. The payments would be reduced by about $36 billion over 10 years, $7 billion less than under the Senate bill.

Richard Rubin contributed to this story.

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