President Obama's health care reform effort is facing fiscal reality, as Congress begins mark-ups and CBO issues preliminary cost estimates.

HELP Committee Mark-up: On Wednesday of this week, the Senate's HELP (Health, Education, Labor, and Pensions Committee) began marking up Senator Kennedy's proposed Affordable Health Choices Act (AHCA):

• The bill seeks to increase the number of legal U.S. residents who have health insurance by providing grants to states to establish insurance exchanges (called "gateways") and would subsidize the purchase of health insurance through those exchanges for individuals and families with income between 150% and 500% of the federal poverty level. The bill would impose a penalty on people who do not obtain insurance (except for people with income under 150% of the federal poverty level, who would be exempt).


• Insurers would be required to issue coverage to all applicants, and could not limit coverage for people with "pre-existing" conditions. In addition, premiums could not vary because of enrollees' health (but could vary by age to a limited degree).


• The subsidies would cap premiums as a share of income at 1% for those with income equal to 150% of the federal poverty level, increasing to 10% for those with incomes at 500% of FPL.


• Small employers who have employees with low average wages and who offer health benefits would receive government subsidies.


• A Medical Advisory Council would establish minimm requirements for health benefit plans.


• In a preliminary analysis, CBO estimated that the net decrease in the number of people uninsured would be about 16 million (about 1/3 of the uninsured), with a price tag of $1 trillion over the 2010-2019 period. (Note that Kennedy plans to add expanded Medicaid coverage to the bill which would increase the number of people with health coverage, as well as increasing the cost. In addition, a public health insurance option in order to drive down costs through increased competition is under consideration.) CBO Preliminary Analysis of AHCA including bill summary Bill Text


• The bill does not include offsets for the net $1 trillion cost (because the HELP Committee does not have jurisdiction over tax revenues or Medicare and Medicaid reforms).

Senate Finance Committee: The Senate Finance Committee postponed mark-up of its health care reform plan until after the July 4th congressional recess.

• A preliminary CBO cost estimate of ideas being developed by the Finance Committee leaked out, putting the cost at $1.6 trillion over 10 years, causing a fundamental rethinking of the plan.


• Chairman Max Baucus (D-MT) has assembled a bipartisan working group to come up w/ a bill costing no more than $1 trillion over 10 years, with all costs offset by spending cuts and tax increases.


• The working group includes ranking member Chuck Grassley (R-IA), Budget Chairman Kent Conrad (D-ND), and Senators Jeff Bingaman (D-NM), Orrin Hatch (R-UT), Olympia Snowe (R-ME), and Mike Enzi (R-WY), ranking Republican on the Senate HELP committee.


• One idea under consideration to pay for the bill is setting a cost-cutting goal for Medicare -- for example a 1.5% annual reduction in projected cost growth. The Medicare Payment Advisory Commission (MedPAC) would send Congress a package of policy changes to achieve the goal and Congress would approve or reject the package.

House Health Committees: In the House, the three Democratic chairmen of the committees of jurisdiction over health reform -- Ways & Means, Energy & Commerce, and Education & Labor -- introduced a health care discussion draft on June 19, 2008. Highlights:

• Individual Mandate: individuals without insurance would have to pay a penalty (2% of AGI)


• Employer Play-or-Pay: employers not offering insurance would have to pay 8% of payroll. Those offering insurance would contribute 72.5% of the cost of premiums for employees (65% for family coverage)


• Tax credits available for small businesses offering coverage


• Subsidies to low-income individuals and families (up to 400% of poverty) to buy coverage through health insurance "exchanges"; subsidies phased out at $88,000 for families and $43,000 for individuals


• No exclusions for pre-existing conditions


• Exchanges would include a public option


• Fill in the Medicare Rx "doughnut hole"


• No cost estimates were released, but the plan calls for a number of Medicare reforms including: testing accountable care organizations; bundling of acute and post-acute provider payments; reform of the Medicare physician payment system; incentives to avoid readmissions; and incentives for primary care services.

Summary of House Tri-Committee Plan
House Plan: Draft Legislative Language
Additional Background on House Democratic Plan

Former Senate Majority Leaders Propose Bipartisan Health Plan: Former Senate Majority Leaders Howard Baker (R-TN), Bob Dole (R-KS), and Tom Daschle (D-SD) released a bipartisan health reform plan costing $1.2 trillion over 10 years. Highlights of the plan:

• Funding for states to establish insurance exchanges;


• Guarantee access to coverage regardless of pre-existing conditions;


• A mandate for individuals to have health insurance and premium caps and assistance for people with low incomes;


• Tax employer-provided health benefits above the value received by federal employees in order to pay for the cost of the program;


• Promote high-quality, high-value care through health IT, bundled payments, and comparative effectiveness research;


• A budget trigger designed to measure expenditures and implement explicit policies that would achieve more savings if needed.

Baker-Dole-Daschle plan

In a highly informative report prepared for the Senate Budget Committee and released this week, the Congressional Budget Office reiterated that "the federal budget is on an unsustainable path, primarily because of rapidly rising spending on health care." Highlights of the report:

• "Large reductions in spending will not actually be achieved without fundamental changes in the financing and delivery of health care. The government can spur those changes by transforming payment policies in federal health care programs and by significantly limiting the current tax subsidy for health insurance."


• Without meaningful reforms, the substantial costs of many current proposals to expend federal subsidies for health insurance would be much more likely to worsen the long-run budget outlook than to improve it."


• Most of the projected increases in health care spending "will result from rising costs per capita, rather than from the aging of the population."


• Medicare Part A (hospital insurance) will have insufficient funds to cover services in 2017.


• Debt held by the public, under current policies, will reach 86% of GDP by 2019, due largely to increases in health spending.


• Broader insurance coverage might lead to less cost shifting (from uncompensated care to private payers), but that effect would be relatively small and would not produce any net savings.


• Insurers currently expend resources to avoid paying for treatments that address preexisting conditions. Expanded coverage would save such resources.


• A significant share of the population moves in and out of insurance coverage during a year, which complicates efforts to provide effective prevention services.


• If a reform package achieved "budget neutrality" during its first 10 years, budgetary savings in the long run would not be guaranteed if benefits are phased in slowly, because the initial 10-year cost would be unrealistically low.


• The most compelling evidence about the extent of inefficiency in the health sector is that Medicare spending varies widely across different regions of the country.


• Changes in the tax exclusion for employer-provided health insurance can impact the efficiency of health care financed by the private sector by giving workers stronger incentives to seek lower-cost health insurance plans.


• Reforms that are likely to make the health care sector more efficient include: moving away from fee-for-service payments toward paying providers for good outcomes; higher cost-sharing; and better information about the effectiveness of different treatments (comparative effectiveness).

• "(A)ny savings in existing federal programs that were used to finance a significant expansion of health insurance would not be available to reduce future budget deficits. In light of the unsustainable path of the federal budget under current law, using savings to finance new programs instead of reducing the deficit would necessitate even stronger policy actions in other areas of the budget."

CBO Report

MedPAC (Congress' Medicare Payment Advisory Commission) this week released a report addressing how incentives in the Medicare payment systems could be changed to save money and increase quality. MedPAC's reports are a key source of information and analysis on ways to reduce the rate of growth in Medicare spending -- which is particularly important this year when Medicare reforms are being actively considered as offsets to pay for health care reform legislation. Highlights:

• "To achieve better care coordination and efficiency, Medicare must change the way it pays health care providers," said Glenn Hackbarth, Chair of the Commission. "Current incentives reward volume instead of value and costly care instead of efficient, effective care."


• The report explores how "accountable care organizations" (ACOs) could increase quality and lower cost growth by promoting care coordination.


• The report addresses how Medigap policies "can lead to higher use of services and Medicare spending, frequently without corresponding gains in quality of care."


• MedPAC also reports that "in 2009 Medicare is paying about $12 billion more for the beneficiaries enrolled in Medicare Advantage (private plans) that it would have spent if they were in Fee for Service Medicare."

MedPAC Report: Improving Incentives in the Medicare Program

Fact Sheet

Press Release

In a related development, Senate Finance Committee Health Subcommittee Chair Jay Rockefeller (D-WV) has proposed to beef up the role of MedPAC:

• On May 20, Senator Rockefeller introduced legislation to make MedPAC an independent executive branch agency, moving the responsibility for health care reimbursement rates from Congress into the hands of health care experts.


• Rockefeller said that "health care reform will only be successful if we craft transformative changes. By giving MedPAC independent authority to decide and implement reimbursement policies, with a formal process for seeking and considering public input, we are giving the true experts the chance to weigh in on health care."


• The Concord Coalition believes that Senator Rockefeller's proposal to place Medicare policy in the hands of an independent executive branch agency is a step in the right direction and consistent with the urgent need for entitlement reforms.

Rockefeller press release Rockefeller MedPAC bill (S. 1110)

CBO this week released its updated Analysis of the President's FY 2010 Budget (which was sent to Congress on May 7th). Highlights of CBO's report:

• CBO estimates a 10-year (cumulative) deficit of $9.1 trillion -- about 1.4% below the March estimate, reflecting revisions of some proposals and some technical re-estimates;


• The deficit for the current fiscal year, FY 2009, is estimated to be $1.8 trillion, followed by a $1.4 trillion deficit in FY 2010;


• Debt held by the public would rise from 57% of GDP in FY 2009 to 82% of GDP in 2019;


• Revenues would grow from 15.5% of GDP in 2009 to about 19% of GDP beyond 2013 (as compared to 19.9% of GDP if the 2001 and 2003 tax cuts were allowed to expire); and


• Outlays would fall as a percentage of GDP from 28.5% in 2009 to 22.6% in 2012, after which they would begin rising largely because of health care spending and increasing interest payments on the public debt -- reaching 24.5% in 2019 (compared to the average of 20.7% over the last 40 years).

CBO Analysis of the President's Budget

CBO Director's Blog

House Subcommitee (302(b) Allocations

Senate Subcommittee (302(b) Allocations

MARK-UPS COMPLETED WEEK OF JUNE 15:

House subcommittee: Mil Con-VA; State-Foreign Ops

House full committee: Agriculture; Interior-Environment

Senate subcommittee: Homeland Security

Senate full committee: Homeland Security; Legislative Branch

HOUSE FLOOR ACTION: 6/18: Commerce-Justice-Science passed

In general--Congressional appropriators face the task of reconciling the President's FY 2010 discretionary funding requests that total $9 billion more than the amount allowed by the FY 2010 congressional budget resolution (see April 30, 2009 WBR). Appropriators will also have to decide whether to accept the $17 billion in program reductions and terminations proposed by the Administration (see May 11, 2009 WBR). Obama Administration's proposed "Terminations, Reductions, and Savings"

Following are LINKS to the latest congressional action, plus a sampling of issues facing the appropriators as reported by Congressional Quarterly. The numbers in parentheses are the FY '09 regular appropriations level in billions (not including stimulus funds), followed by the FY 2010 President's request.

1. AGRICULTURE ($21.6 / $22.9) -- Major issues include the President's proposed 6.5% increase over the current year; overhaul of the food safety system; and the President's proposal to end direct payments to farmers with more than $500,000 in annual sales revenue. House: Chairman's Statement Summary Table Earmark List Summary as Passed by full committee

2. COMMERCE-JUSTICE-SCIENCE ($60.1 / $64.6) -- Major issues include the President's proposed 7% increase over the current year; funds to close Gitmo; a major Southwest Border Initiative; readiness of the Census Bureau for the upcoming census; NASA's post-space shuttle priorities; and a program to help states defray the costs of jailing illegal immigrants convicted of crimes. House: Chairman's Statement Summary Table Earmark List Summary as passed by full committee