WASHINGTON BUDGET REPORT: July 13, 2009

Health Reform Faces Two Major Hurdles: Public Plan and Budgetary Offsets

Announcements

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Budget Process: Step-by-Step

Track 1- Economic Stimulus:

Feb 17: Signed into law by the President (Concord Summary)
Current: Track expenditures at www.recovery.gov

Track 2 - Completion of '09 Appropriations:

March 11: President signed omnibus appropriations bill funding agencies through the rest of FY09
April 9: President transmitted an $83 billion FY 2009 supplemental request to Congress
June 17: House adopted FY 2009 Supplemental Conference Report by a vote of 226-202
June 18: Senate adopted FY 2009 Supplemental Conference Report, 91-5, clearing the bill for the President. In addition to war funding for Iraq and Afghanistan, the bill also includes funds for Pakistan, IMF (International Monetary Fund) loan guarantees, pandemic flu, and "cash for clunkers" to encourage people to trade in older vehicles for ones that are more fuel efficient.

Track 3 - FY 2010 Budget [SEE APPROPRIATIONS TRACKER BELOW]:

February 26: President Obama transmitted a budget outline.
March 20: CBO released its Preliminary Analysis of the President's FY 2010 budget (using CBO economic projections)
March 25-26: House Budget Comm. and Senate Budget Comm. marked-up their respective versions of the FY 2010 Congressional Budget Resolution.
April 29: House and Senate adopted Budget Resolution Conference Report (S.Con.Res. 13).
May 11: Administration released remaining details of President's FY 2010 Budget
May-Sept: Action on the 12 regular FY 2010 appropriations bills beginning with the House and Senate Appropriations Committees dividing their respective budget resolution allocations among their 12 subcommittees (known as 302(b) allocations -- see Appropriations Tracker, below)
October 15: Budget Resolution deadline for committees to report budget reconciliation legislation (health care reform and student loan reform), although congressional leaders will initially try to move a free-standing health reform bill without budget reconciliation's filibuster-proof protections.

Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)

Concord's Financial Crisis Timeline w/ links
Feb. 10: Treasury released Financial Stability Plan.
Feb. 18: President announced Homeowner Affordability and Stability Plan
Feb. 26: President released 2010 budget including a $250 billion contingent reserve for additional financial stabilization
March 3: Treasury and Fed announced launch of TALF to boost consumer, small business credit
March 18: Fed announced plan to pump $1.15 trillion into financial markets
March 23: Treasury announced plan to purchase "toxic assets"
March 26: Treasury Secretary announced regulatory overhaul for financial industry
May 7: Results of bank stress tests released
June 17: White House, Treasury released comprehensive plan for regulatory reform

Track 5 - Health Care Reform

March 5: White House Summit on Health Reform
May 11: White House meeting with Key Stakeholder Groups
Senate HELP Committee: Senate HELP Committee began marking-up a health care reform bill in June and continues mark-up this week.
House Tri-Committee Bill: Last month, three House Committees (Ways & Means, Energy & Commerce, and Education and Labor) released a joint health reform proposal and are contining efforts to agree on offsets and address concerns raised by the Blue Dog Caucus. Mark-ups could begin this week.
Senate Finance Committee Bipartisan Bill: Chairman Max Baucus and Ranking Republican Chuck Grassley are continuing efforts to craft a bipartisan bill, focusing on offsets and a health insurance co-op to compete with private insurance companies.
Oct. 15: Budget Resolution deadline for committees to report budget reconciliation legislation (including health care reform), although congressional leaders will initially try to move a free-standing health reform bill without budget reconciliation's filibuster-proof protections.

Track 6 - Climate Change - Energy

May 21: House Energy & Commerce Committee passed the Waxman-Markey climate change bill, approving the measure on a nearly party-line vote (33-25). The bill would mandate a 17% reduction in greenhouse gas emissions by 2020 and 83% by 2050. To accomplish this, the government would set a cap on the amount of carbon dioxide that could be emitted and would issue allowances to polluting sectors that could buy and sell those rights ("cap-and-trade").
June 6: CBO says Waxman-Markey climate bill (HR 2454) would reduce the federal deficit $24 billion over 2010-2019. CBO Report
June 17: Senate Energy Committee passed 15-8 a controversial energy bill opposed by many environmental groups Press Release Bill Summary Opposition from Environmental Groups
June 26: CBO estimates that the revised Waxman-Markey climate bill (HR 2998) would reduce the federal deficit $9 billion over 2010-2019 (increase revenues from "cap-and-trade" by $873 billion and increase direct (mandatory) spending $864 billion). CBO Report
June 26: House narrowly passes Waxman-Markey climate change bill 219-212
Senate EPW Chairman Barbara Boxer (D-CA) is aiming for a September mark-up of legislation.
The Administration wants a bill passed before U.N. climate change talks in Denmark in December.

Track 7 - Highway Bill (FY 2010-15)

Leaders of key congressional committees have been negotiating the parameters of the next multiyear highway bill (FY 2010-2015).

However, the Obama Administration has signaled an interest in putting off consideration of a multiyear highway bill due to cost issues -- opting instead for an 18-month extension of current law--but even that will require finding $20 billion in revenues, since the federal gas tax is bringing in insufficient revenues to fund highway programs. The highway trust fund could run out of money as early as this August, and a general fund bailout could be politically difficult.
For the period covered by the budget resolution (2010-2014), Congress allocated $259 billion to the relevant House and Senate Committees for highway and transit spending. This amount reflects a $67 billion increase above the "baseline" level--which is tied to current highway bill spending.

Track 8 - Enacting Statutory PAYGO

June 9: President's PAYGO announcement; White House Summary; Legislative Text

June 17: Majority Leader Hoyer Introduces PAYGO Bill (HR 2920) Press Release Blue Dog Statement

June 25: House Budget Committee Hearing on PAYGO
Concord Coalition Issue Brief on PAYGO

Health Reform Faces Two Major Hurdles: Public Plan and Budgetary Offsets

See, below, a health reform side-by-side comparing the 3 major bills.

Progress on health care reform continues to face two major hurdles: (1) whether to include a "public plan" -- strongly supported by many liberal Democrats and strongly opposed by Republicans; and (2) finding politically viable offsets to pay the trillion-dollar cost over 10 years.

As time goes by without resolving these issues, congressional Democrats are inevitably sliding closer to their fallback option -- legislating health care reform under the protection of filibuster-proof budget reconciliation procedures.

However, budget reconciliation carries its own set of challenges, the most significant of which is the "Byrd Rule" restriction that policy provisions that have no budgetary impact (or a merely incidental budgetary impact) could not be included in the bill. This means Congress would have to defer many key provisions of health reform to the regulatory process at HHS.

Following are recent developments on health reform:

Release of final version of House Tri-Committee bill delayed due to Blue Dog Concerns: Last Thursday 40 House Blue Dogs (fiscally conservative Democrats) wrote a letter to leadership expressing concerns about ensuring deficit neutrality, emphasizing delivery system reform, small business protections, rural health equity, and bipartisanship. Blue Dog July 9th letter

House Dems Propose Surtax: House Democrats announced last Friday their proposal to get half of their budgetary offsets to pay for healthcare reform from a surtax starting at 1% for married couples with adjusted gross income of $350,000 ($280,000 for individuals). The surtax would increase with two additional brackets for those with incomes above $500,000 and $1 million. The surtax would raise $540 billion over 10 years. However, the surtax has little chance of getting traction in the Senate, particularly if a bipartisan plan moves forward. Budget Committee Chairman Kent Conrad said on July 12th, "I don't think the House proposal as I've heard it will be what's part of the final package."

Administration calls on House to make deeper Medicare/Medicaid cuts: In a July 8 letter to three House committee chairmen with jurisdiction over health reform, OMB Director Peter Orszag urged House Democrats to make deeper spending cuts in Medicare and Medicaid. "Adopting a deficit-neutral health reform that expands coverage...is not enough," Orszag said, "because it would perpetuate a system in which best practices are far from universal and costs are too high." Specifically, Orszag recommended that House leaders make cuts in "disproportionate share" (DSH) payments made to hospitals that treat large numbers of uninsured patients. Orszag letter

CBO Releases Preliminary Estimate on Tri-Committee bill: On July 8th, CBO released a preliminary estimate on a portion of the House Tri-Committee bill. CBO Preliminary Estimate

Public Plan Survives Key Vote in HELP Committee: Last week, Senate HELP Committee Democrats voted on party lines (13-10) to reject a Republican effort to strip a public plan from the Kennedy-Dodd bill. Supporters of a public plan believe it's essential to spur competition among insurers to hold down escalating costs. Opponents of a public plan believe it would unfairly undercut private insurance plans and lead to a "single payer" insurance system like Medicare. While HELP Committee Democrats have protected a public plan approach for the moment, the Finance Committee continues bipartisan negotiations which seek to bridge partisan differences through a publicly established health insurance "co-op."

Taxing Health Benefits Loses Leadership Support in the Senate: The Senate Finance Committee led by Chairman Max Baucus (D-MT) and Ranking Republican Chuck Grassley (R-IA) had been seriously considering allowing employer provided health benefits to be taxed to help pay for a bipartisan health reform plan under development, but last week Senate Majority Leader Reid said including that offset would lead to a critical loss of support among Senate Democrats. This leaves bipartisan negotiators searching for less controversial spending cuts or revenue raisers to offset a $1 trillion health plan. One option reportedly under consideration is applying the Medicare Hospital Insurance payroll tax to investment income. In addition, Finance Committee Democrats are reportedly taking a second look at the Administration proposal to limit tax deductions for upper income earners.

Administration Seeks to Nail Down Hospitals' Support: On July 8th, Vice President Biden announced an "agreement" in which three associations representing the hospital industry agreed to cuts in Medicare and Medicaid payments totaling $155 billion over 10 years, in view of the anticipated increase in patients who have insurance coverage. The three associations are the Federation of American Hospitals, the Catholic Health Association, and the American Hospital Association. FAH President Chip Kahn said 2/3 of the cuts would come from annual adjustments to hospital payment updates, and the remaining 1/3 from lower DSH payments (see above).

CBO Releases Cost Estimate on Senate HELP Committee bill: CBO's preliminary analysis of the Senate HELP Committee's health reform bill puts the total estimated 10-year cost at $611 billion. CBO Estimate

Health Reform Side-by-Side

Currently pending are three major health reform measures at various stages of development:

A tri-committee House plan (Ways & Means/Rangel, Energy & Commerce/Waxman, and Education and Labor/Miller);

A Senate Finance Committee bipartisan plan (Baucus/Grassley); and

A Senate HELP Committee Democratic plan (Health, Education, Labor, and Pensions/Kennedy-Dodd).

Senate Finance

Senate HELP

House Tri-Committee

Individual mandate to purchase health insurance, w/ tax penalties for non-compliance

Yes

Prohibition on denying coverage due to pre-existing condition

Yes

Creates a health insurance exchange where individuals can compare a basic package of benefits and purchase coverage

Yes

Subsidies for individuals

Up to 300% of FPL*

Up to 400% of FPL*

Public plan for people under 65 (to generate competition w/ private plans)

Developing a co-op model in lieu of public plan

Yes

Yes (but Blue Dogs have concerns)

Employers required to provide coverage? ("employer mandate")

To be determined

Employers w/ more than 25 workers (or pay $750 per uninsured worker)

Provide coverage or pay 8% of payroll into trust fund (tax credits for small employers)

10-year cost

Aiming for less than $1 trillion

$611 billion (not including a significant Medicaid expansion)

Aiming for less than $1 trillion.

Offsets to pay for the bill

Under discussion: Medicare savings; and unspecified tax increases amounting to $320 billion

To be determined, but Dodd says no to health benefits tax

Under discussion: Surtax on upper income earners generating $540 b; and Medicare cuts of $500 b. Surtax would increase in 2013 if spending savings not realized.

*FPL: Federal Poverty Level