Cost Estimate for Pending Health Care Legislation

March 21, 2010

Last night CBO released a cost estimate for the reconciliation proposal that represents one component of the health care legislation being considered by the Congress. The other component is a bill, H.R. 3590, that the Senate passed in December.

CBO and the staff of the Joint Committee on Taxation (JCT) estimate that enacting both pieces of legislationH.R. 3590 and the reconciliation proposalwould produce a net reduction in federal deficits of $143 billion over the 20102019 period as result of changes in direct spending and revenues. That figure comprises $124 billion in net reductions deriving from the health care and revenue provisions and $19 billion in net reductions deriving from the education provisions. CBO has not completed an estimate of the potential impact of the legislation on discretionary spending, which would be subject to future appropriation action.

On the education side, the reconciliation proposal would amend the Higher Education Act of 1965, which authorizes most federal postsecondary education programs. In particular, the proposal would eliminate the federal program that provides guarantees for student loans and replace those loans with direct loans made by the Department of Education. It would also increase direct spending for the Pell Grant program and other education grant programs.

On the health care and revenue side, the reconciliation proposal and H.R. 3590 would, among other things, establish a mandate for most 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; 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 excise tax on insurance plans with relatively high premiums; and make various other changes to the federal tax code, Medicare, Medicaid, and other programs.

CBO and JCT estimate that by 2019, the combined effect of enacting H.R. 3590 and the reconciliation proposal would be to reduce the number of nonelderly people who are uninsured by about 32 million, leaving about 23 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the legislation, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent.

Members have also requested information about the effect of the legislation on health insurance premiums. In November CBO released an analysisprepared by CBO and JCT of the expected impact on average premiums for health insurance in different markets of H.R. 3590 as originally proposed. Although CBO and JCT have not updated the estimates provided in that letter, the effects on premiums of the legislation as passed by the Senate and modified by the reconciliation proposal would probably be quite similar.

Although CBO does not generally provide cost estimates beyond the 10-year budget projection period, CBO (together with JCT) has developed a rough outlook for the ensuing decade. CBO estimates that the combined effect of enacting H.R. 3590 and the reconciliation proposal would be to reduce federal budget deficits during the 2020s relative to those projected under current lawwith a total effect during that decade in a broad range around one-half percent of gross domestic product (GDP).

That calculation reflects an assumption that the provisions of the legislation 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 mechanism governing Medicares payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress. The current legislation would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.