Cost Estimate for Health Care Legislation Pending in the House

Posted on
November 6, 2009

Last night CBO and the staff of the Joint Committee on Taxation (JCT) released an estimate of the direct spending and revenue effects of H.R. 3962, the Affordable Health Care for America Act, as introduced on October 29, 2009, incorporating the managers amendment proposed by Representative John Dingell on November 3, 2009.

Among other things, the legislation would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance exchanges through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; establish a public plan that would be administered by the Secretary of Health and Human Services; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicares payment rates for most services (relative to the growth rates projected under current law); impose an income tax surcharge on high-income individuals; and make various other changes to the federal tax code, Medicaid, Medicare, and other programs.

CBO and the staff of JCT estimate that, on balance, the direct spending and revenue effects of enacting H.R. 3962, incorporating the managers amendment, would yield a net reduction in federal budget deficits of $129 billion over the 2010-2019 period. (CBO has not completed a comprehensive estimate of the legislations potential impact on spending that is subject to future appropriation action.) In the decade after 2019, the bill would probably result in slight reductions in federal budget deficits.

On October 29, 2009, CBO transmitted a preliminary analysis of H.R. 3962 as introduced. (As discussed in that analysis, CBO and JCT estimated that enacting H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the 20102019 period.) This estimate differs from that preliminary analysis for several reasons:

  • First, this analysis incorporates the effects on spending and revenues of the managers amendment. Those changes are relatively small with the exception of the addition of a tax provision regarding credits for producers of biofuel, which would increase net revenues by about $24 billion over the 2010-2019 period, according to JCT.
  • Second, the updated analysis reflects Medicares payment rates for calendar year 2010 and other changes announced in final rules that were posted on the Federal Registers Web site on October 30, 2009. Those final rules involve home health services, hospital outpatient services, the physician fee schedule, and other Medicare Part B services.
  • Finally, this analysis incorporates several technical revisions that had a small impact on the estimated budgetary effects of the legislation.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 36 million, leaving about 18 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the bill, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 96 percent.

Those estimates for H.R. 3962 include revenue increases from a tax provision similar to one that was included in a bill that the Congress cleared yesterday. H.R. 3962 would repeal certain tax rules, scheduled to take effect in 2011, that would allow corporations with worldwide activities to reduce their U.S. income taxes by allocating more of their interest expenses to domestic profits. Yesterday, the Congress cleared for the Presidents signature legislation that extends unemployment benefits, which also included a provision that will delay the implementation of those worldwide interest allocation rules until 2018. So, the repeal of those rules in H.R. 3962, the health care bill, would now generate less revenue because the rules would only be in effect for two years during the 2010-2019 period. Consequently, the original estimate for the impact of that repeal under H.R. 3962, about $26 billion over the 10-year period, will now be reduced to about $6 billion as a result of the cleared unemployment legislation. Later today, CBO will issue an updated estimate for the health care bill, reflecting the fact that the additional revenues that would result from its enactment will be smaller than those shown in last nights estimate.