I had to put this together real quick for work, but it makes sense to share it here as well.  The information is not particularly timely, as it’s all a couple of weeks old.

Cost Estimates

On October 7th the CBO released their analysis of the Chairman’s mark of America’s Healthy Future Act of 2009. The analysis was based on “the specifications posted on the committee’s Web site on October 2, 2009, corrections posted on October 5, and additional clarifications provided by the staff of the committee through October 6.” The actual legislative language (S. 1796) has only recently been released and thus has not yet been scored.

Based on the Chairman’s mark, CBO and the Joint Committee on Taxation found a gross cost of $829 billion over 2010-2019 for its “credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers.” These costs would be offset by $201 billion in revenues from an excise tax on “Cadillac” plans, and another $710 billion in various other spending changes and cuts. The net 10 year deficit impact would be a reduction of $81 billion. The 10 year projection is somewhat skewed by an apples-to-oranges comparison where proposed tax increases and spending cuts would begin immediately, while the new expenditures and benefits would be delayed for 3 years.

CBO heavily qualifies this analysis, pointing out that the mark, which might not even survive the process of being operationalized into legislative language, included questionable assumptions which CBO had to accept. Specifically they note, “These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments… The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.”

Critics point out that legislative history suggests these reductions will never be allowed. Michael Tanner of the Cato Institute notes that, “the bill assumes that Congress will implement a 21% reduction in Medicare payments that is already scheduled under current law. The only problem is that Congress has been supposed to make those reductions since 2003 — and never has. There is no reason to believe it will do so this time either.”

The CBO estimate only looked at the costs imposed by the expansion of health insurance coverage. Economist Donald Marron finds that in addition to these costs, the bill includes $75 billion in additional spending, like the almost $21 billion for expanding the Medicare drug benefit. Michael Cannon of the Cato Institute points out an additional $33 billion in unfunded mandates placed on the states. He also notes that in Massachusetts, costs imposed on the private sector, omitted by CBO, accounted for almost 60% of the total cost. Using this figure he calculates that the real cost of the Baucus bill could be over $2 trillion.

Tax Increases

The largest tax increase comes in the form of a 40% excise tax on health insurance plans that offer individual benefits in excess of $8,000, or family benefits of $21,000. The plan also includes an effective tax as high as $5.4 billion per year companies producing medical devices. This amounts to an excise tax on items like powered wheelchairs, pacemakers and prosthetic limbs. A similar tax, euphemistically referred to as an “annual fee,” is levied on the pharmaceutical industry. The effective tax on drug manufacturers could be as high as $3.1 billion per year.

Other proposed changes to the tax code will amount to tax increases for many individuals. The limit on employer-sponsored tax-free flexible spending accounts would be reduced from $5,000 to $2,000, while payroll taxes would be increased. Those with high out-of-pocket health expenses would see an increase as the threshold necessary for tax deductible medical expenses would be raised from 7.5 percent to 10 percent of gross income. Only about half of households would qualify for the subsidies paid for by these taxes.

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