Senate: Reid Moves Forward With "Opt-Out" Public Plan; 60 Votes Uncertain

Yesterday, Senate Majority Leader Harry Reid announced a decision to move forward with a health reform package that includes a public health insurance option, but allows states to "opt-out."  The plan has been sent to the Congressional Budget Office (CBO) for scoring. The Reid plan would also retain the consumer-owned "co-ops" included in the Finance Committee plan.

Reid's decision was made during the course of negotiations to merge the Senate Finance Committee health plan (Baucus plan) and the HELP Committee plan (shepherded by Sen. Chris Dodd, D-CT).  

What remains unclear is how close Reid is to securing 60 votes for the plan in order to overcome a Republican filibuster.  Senator Olympia Snowe (R-ME)--the only Senate Finance Committee Republican to support the Baucus plan--has already expressed her opposition to the "opt-out" plan, so Reid needs to corral every Senate Democrat plus Independent Joe Lieberman (I-CT).  (Snowe has said she will support a public option only if it is made contingent on a finding that private insurance plans sold through exchanges had failed to lower health care costs; this has been dubbed the "trigger option.")

Congressional Quarterly reports that Senate Majority Whip Dick Durbin (D-IL) has said the leadership is still at the "earliest stages" of a whip count.  Leadership is trying to get commitments from Democrats to at least vote for cloture to shut down a Republican filibuster, even if they do not support the final plan, as amended on the Senate Floor.  Democratic votes that may be difficult to nail down include Senators Ben Nelson (D-NE) and Blanche Lincoln (D-AR).

[Why are 60 votes required?--The Senate cannot vote on passage of a measure until debate has concluded. Opponents of a bill can block a vote on any amendment or the final passage of the bill itself simply by continuing debate--known as a "filibuster."  Cutting off a filibuster--known as cloture--requires 60 votes.]

National Journal's Congress Daily reports that other issues still under discussion by Senate health negotiators include whether the final bill will include an employer mandate; long term care insurance; the tax on high-cost "Cadillac" health plans; and the affordability of insurance plans under the proposed Health Exchanges.

Long-Term Care Insurance Remains An Issue in the Senate

The Concord Coalition has raised concerns about including a new long-term care entitlement in the health reform bill.  Ironically, the provision, which was included in the HELP Committee bill, was scored by CBO as saving money in the short-term (because premiums are paid for 5 years before anyone is "vested" to receive benefits).  However, over the long-term, there is a substantial risk that the new entitlement would increase deficits, as constituent pressure grows to increase benefits, but not premiums. 

Senator Bayh (D-IN) has raised similar concerns that the new entitlement could lead to "an unfunded situation that could really explode the deficit in the outyears."  According to Congress Daily, Bayh raised the issue with Reid who said he had submitted bills to CBO with and without the provision.

House: Pelosi Has Hurdles to Reach 218 Votes  

House Democratic Leadership is still counting votes to determine which version of a public option will end up in the bill they bring to the Floor.  The two options currently being floated are a public option linked to Medicare payment rates (plus 5% for physicians),  and another option based on negotiated rates. Leaders will have to determine if either approach can garner 218 Democratic votes (since solid Republican opposition is anticipated).

Leadership also faces challenges in the area of cost containment.  Recently, 36 fiscally conservative Democrats in the House conditioned their support of health reform on cost containment.  In a letter to Speaker Pelosi and Majority Leader Hoyer, the three dozen Democrats said, "CBO Director Douglas Elmendorf has already indicated that the bill being considered by the House does nothing to rein in the cost of health care, and therefore may not be sustainable outside the ten-year budget window.  We will be unable to support any health care legislation that doesn't meet the president's goals of driving down and holding down the cost of health care, as determined by CBO."  However, the letter's signers praise the Senate Finance Committee bill for cutting $81 billion from the deficit over the first 10 years, while reducing projected health costs in subsequent years.  The letter was organized by Representatives John Barrow (D-GA) and Rep. Glenn Nye (D-VA).   Letter to Pelosi and Hoyer from Fiscally Conservative Democrats 

Reconciliation Fallback Still Looms

If 60 votes cannot be achieved in the Senate, the FY 2010 Budget Resolution gives congressional leaders the option to avoid the 60-vote hurdle and pass a filibuster-proof health reform bill with a simple majority of 50 votes. This procedure is known as "budget reconciliation."   The advantage of reconciliation is that it is filibuster-proof.  The disadvantage is that under the Senate's "Byrd Rule," reconciliation bills can only contain measures that are "budgetary" in nature, i.e., provisions that do not impact the federal budget would have to be dropped from health reform.  These could include many of the insurance reforms such as prohibitions on pre-existing condition clauses, and annual and lifetime caps on insurance benefits (although the provisions could be packaged and considered as a non-filibuster proof regular bill).

Reconciliation also serves as a fallback if a House-Senate conference cannot produce a compromise bill that can garner 218 votes in the House and 60 votes in the Senate (for example, due to lack of agreement on a public option.) 

Concord's Health Reform Side-by-Side: President, Senate HELP, Senate Finance, House Tri-Committee

Concord Coalition Open Letter on Health Reform

Deficit concerns prevailed, as the Senate failed last Wednesday (October 21) to override automatic cuts scheduled to take place in Medicare Physician payments (known as the "Sustainable Growth Rate" or SGR payment schedule).  Senate Budget Committee Chairman Kent Conrad (D-ND), 12 Democrats, and independent Joe Lieberman (I-CT) joined Republicans in defeating an attempt by Majority Leader Harry Reid (D-NV) to invoke cloture and bring the measure to a vote.  Conrad and others objected to the fact that the $247 billion 10-year cost to override the SGR payment schedule would not have been paid for.

The Concord Coalition strongly supported Chairman Conrad's efforts to block the measure which would have added significantly to the already spiraling federal debt.  Concord Coalition Statement on Medicare "Doc" Fix

House leadership is similarly seeking to fix the SGR problem by freezing physician pay and canceling required cuts--but has attempted to address the concerns of fiscally conservative "Blue Dog" Democrats by promising that PAYGO legislation passed by the House in July would first become law. That bill would, in general, require that new tax cuts and mandatory spending increases by offset by tax increases and/or spending cuts.

However, while generally imposing a statutory pay-as-you-go requirement, the PAYGO bill passed by the House in July would exempt the Medicare doc fix from the PAYGO requirement.  Moreover, the House-passed PAYGO bill would also exempt: extension of the Bush tax cuts (at a 10-yr cost of more than $2 trillion), fixing the estate tax before it jumps back to pre-2001 levels (at a cost of more than $250 billion), and fixing the Alternative Minimum Tax so it doesn't impact middle income taxpayers (at a 10-yr cost around $500 billion).   See The Concord Coalition Issue Brief on PAYGO

Background.--In 1997, the bipartisan "Balanced Budget Act" set up a new Medicare physician payment system designed to generate significant cost savings.  The new mechanism was called the "Sustainable Growth Rate" and tied future Medicare physician payment rates to past spending.

Doctors complain about the SGR formula because it did not allow doctor's payments to keep pace with medical cost growth and Congress stepped in almost every year since 2002 to stop the SGR automatic cuts from being implemented.  This has caused a rapidly increasing gap between current Medicare physician payments and the SGR rate required by the 1997 law.  Consequently, payment rates under the SGR physician fee schedule are due to fall by about 21 percent in 2010 and by about 5 percent annually for at least several years thereafter.

CBO Report on Fixing the SGR:  See Option 59

Thus far, Congress has completed action on only 4 of the 12 regular appropriations bills for FY 2010 (which began October 1, 2009): Agriculture; Energy-Water; Homeland Security; and Legislative Branch.

Funding Trick-or-Treat: This weekend (October 31st at midnight), the "continuing resolution" that has been keeping federal agencies operating in the absence of regular appropriations bills will expire.  Consequently, Congress will have to act this week to pass a second continuing resolution for FY 2010. 

Background.--In recent years, appropriations bills have seldom been completed by the start of the new fiscal year. In the last 33 years Congress has, only four times, completed all of its annual appropriations bills by the start of the new fiscal year.

However, the Constitution is very clear that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” In addition, in 1870 Congress enacted the Anti-Deficiency Act strictly prohibiting Federal programs from operating without specific budget authority appropriated by Congress. Put simply, without appropriations, Federal managers have no legal authority to obligate the U.S. government’s resources.

Therefore, when appropriations are not enacted by October 1, the beginning of the new fiscal year, Federal departments and agencies must shut down, in the absence of a continuing resolution or "CR" -- which authorize agencies to continue current programs for a period of time according to a formula, usually the previous year’s levels, or the lower of the funding levels in the House-passed or Senate-passed bill. (The CR for FY 2010 funds most programs at their 2009 funding level through October 31, 2009.)  The number of continuing resolutions needed until all programs are funded for the new fiscal year can vary dramatically depending on how contentious the funding issues are.

CRs are also often used to temporarily extend expiring programs or limitations until legislative action has been completed.  The first FY 2010 CR temporarily continued intelligence programs, Guantanamo Bay restrictions, stop-loss payments to US troops, child nutrition programs, surface and aviation transportation programs, numerous housing programs, flood insurance, certain visa programs, the "E-verify" program, the chemical facility security program, and the Ryan White AIDS funding program.

In addition to temporarily continuing funding to avoid government shutdowns, continuing resolutions are also frequently used as the legislative vehicle for “omnibus appropriations bills.” These are bills that package together all of the unfinished appropriations bills.  

There is much opposition to the use of omnibus appropriations bills both within and outside the Congress, because the sheer length of the bills makes it impossible for any Member of Congress to exercise anything close to due diligence in understanding the totality of what they are voting on. Yet, getting to closure on the new year’s funding levels at the end of a congressional session very often leads to the legislative vehicle everyone loves to hate—the omnibus appropriations bill. (In recent years, when eight, ten, or all of the regular appropriations bills are packaged together, they are referred to as an omnibus appropriations bill. When four or five bills are packaged together, it has become common—in budget-speak—to call them a “minibus.”)

For example, for FY 2010, Congress may end up passing separate conference reports for 6 or 7 appropriations bills that were acted on by both the House and Senate (and subsequently conferenced), with a minibus covering the remaining bills attached to a CR later this fall.

If you thought you'd seen all of the major deficit-increasing bills of 2009, guess again.  Here comes the estate tax cut.  As explained in greater detail below, current law calls for the estate tax to be repealed in 2010 and then return to pre-2001 levels in 2011.  To address this, many in Congress are proposing to continue the estate tax at the current 2009 level.  The problem is that, compared to current law, that will cost the Treasury nearly $250 billion over 10 years. 

Quarter Trillion Dollars in New Debt.--Of great concern to the Concord Coalition is that Congress is heading in the direction of failing to offset this enormous cost to the Treasury.  Ironically, this quarter trillion in new debt would be incurred in order to shield America's wealthiest taxpayers from the currently scheduled increase in the estate tax in 2011.  

Background.--The Federal estate and gift tax is a high-profile public policy issue that, unfortunately, is widely misunderstood due to a lot of ideology muddying the waters. Here are the facts:

• The estate and gift tax is a minor slice of the revenue pie, accounting for only 1% of Federal revenues.
• Because of the estate and gift tax “exemption,” as well as various deductions, the estate and gift tax impacts only a tiny percentage of Americans. For example, only 2% of all deaths in the United States in tax year 2001 resulted in estate tax liability; in 2008, an estimated 0.5% of estates were taxed, due to the increasing exemption.
• The Federal estate tax is applied when property is transferred at death. After deductions and exemptions, the remaining amount is subject to graduated rates of taxation up to 45% as estate size increases.
• An unlimited marital deduction is allowed for property transferred to a surviving spouse. Other allowable deductions include charitable contributions and estate administration expenses. In addition, the so-called unified credit exempts the first $3.5 million of an estate from tax. This is the primary reason why the estate tax impacts only a very small percentage of the estates in the nation.
• The major tax cut legislation enacted in 2001 phased out the estate tax over 2002 to 2010. However, due to the Senate’s Byrd Rule (explained in chapter 2-2), which was designed to prevent the use of expedited budget procedures for legislation that would increase deficits over the long term, the estate tax reverts to pre-2001 levels in 2011. This means that—absent a change in tax law—as of January 1, 2010 the estate tax is repealed and as of January 1, 2011 the estate tax will be reinstated with a pre-2001 exemption level of $1 million and a 55% top tax rate.
• The Federal gift tax operates in conjunction with the estate tax to prevent people from shielding their property from estate taxes by making gifts to heirs prior to death. Each year individuals can make gifts of $12,000 to as many individual recipients as they wish, without being subject to the gift tax. However, any amount in excess of this per-person gift limit is applied to a lifetime gift exclusion amount of $1 million. At time of death, the cumulative amount of gift tax exclusion used by the decedent reduces the estate tax exemption (currently set at $3.5 million).

Myths and Facts

Myth: The estate tax broadly impacts America’s families.
Fact: Actually, 99.8% of Americans pay no estate tax due to the large exemption amount—currently $3.5 million. Only the wealthiest 0.2% of Americans pay estate tax.

Myth: The estate tax poses a serious threat to the survival of small farms and other types of small businesses that lack the liquidity to pay the estate tax.
Fact: According to the Congressional Research Service, “recent estimates suggest that only a tiny fraction of family owned businesses (less than one-half of 1%) are subject to the estate tax but do not have readily available resources to pay the tax.” With regard to farmers, a CBO study in 2005 estimated that when the estate tax exemption level increased to $3.5 million in 2009, only 65 farm estates nationwide would owe any tax, and only 13 might lack sufficient liquidity to pay the estate tax. In 2005, the New York Times reported that neither the American Farm Bureau Federation nor the National Cattleman’s Beef Association could cite a single case of a farm lost to estate taxes.

Myth: Repeal of the estate tax will not increase the Federal Debt.
Fact: Enacting legislation to permanently repeal the estate tax would cost the Treasury $281 billion over FY 2011 to FY 2015—at a time when the U.S. Treasury will already be burdened with rapidly escalating Medicare, Medicaid, Social Security, defense, and homeland security expenditures.