Last Thursday (10/29), House Speaker Nancy Pelosi released a new version of health reform (HR 3962) that merges and refines the bills reported in July by three House Committees (Ways & Means, Energy & Commerce, and Education & Labor).

In a nutshell, HR 3962 would:  (1) establish a mandate for legal residents of the US to obtain health insurance or pay a penalty, and for employers (except small businesses) to offer insurance or pay a penalty; (2) require private insurers to accept all applicants and not discriminate against individuals having pre-existing conditions; (3) establish insurance "exchanges" through which low-income individuals/familes could purchase federally subsidized insurance from private insurers or the federal government; (4) significantly expand Medicaid, the federal-state health program for the poor; and (5) pay for the new subsidies and Medicaid coverage by cutting projected Medicare payments to health providers and imposing a surtax on wealthy individuals and families. 

Details follow (numbers refer to the 10-year period 2010-2019):

Total Direct Spending Costs: $1.055 trillion -- $605 b in subsidies; $425 b in net outlays for Medicaid and CHIP; and $25 b in tax credits for small employers. (Other effects on tax revenues and outlays would increase deficits by $6 b.)

Additional Costs (Subject to Appropriations Committee Action): IRS costs to implement subsidies ($5 - $10b); HHS costs to make required changes in Medicare, Medicaid, and CHIP ($5 - $10 b); and up to $34 b to finance various public health, prevention, and wellness programs.

Offsets that Pay For Increased Coverage:  $426 b from reduced Medicare payments to providers (and other spending changes); $572 b from an income tax surcharge on high-income individuals (more than $500 K) and couples (more than $1 m); and $167 billion in penalty payments by individuals and employees.  The largest Medicare savings would result from reducing the rate of growth in Medicare provider payments by $229 b, and reducing payments to Medicare Advantage private managed care plans by $170 b. 

Net deficit reduction: $104 billion over 2010-2019, although most of that is due to creation of a long-term care insurance entitlement (CLASS)--see below--that would generate premium income in the early years, but higher deficits in later years.

Outyear Deficit Reduction: After 2019, "the added revenues and costs savings are projected to grow slightly more rapidly than the cost of the coverage expansions."  However, this projection is based on the arguably shaky assumption that "Medicare spending would increase at an average annual rate of roughly 6% during the next two decades--well below the roughly 8% annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires."

• In comparison with the Senate Finance Committee-passed bill, CBO concluded in a recent analysis that the Finance Committee bill would be more likely to reduce long-term deficits than the House Leadership bill.  Specifically, the Finance bill is projected to reduce deficits during FY 2020-2029 between one-quarter and one-half percent of GDP, while the House Leadership bill is projected to be in the range of zero to one-quarter percent of GDP.

Improved Coverage: Insurers must accept all applicants, cannot discriminate based on pre-existing conditions, and could not vary premiums to reflect differences in enrollees' health. Share of legal, nonelderly U.S. residents with insurance coverage would rise from 83% to 96% by 2019--but still leave about 12 million uninsured.

"Play or Pay" (Employer Mandate): Employers would have to offer insurance to their employees and contribute a substantial share toward the premiums, or pay a fee to the federal government of 8% of payroll;  small employers (with an annual payroll of less than $750,000) would either pay a lower rate or be exempt. 

Small Business Subsidy: Firms with few employees and relatively low wages would be eligible for tax credits to cover up to half of their contributions toward health insurance premiums. 

Insurance Exchanges and Public Option: People w/o employer insurance could purchase insurance through new "exchanges," choosing between private insurers and a new public health insurance option (administered by HHS).  The public option would negotiate payment rates with all providers and suppliers.  CBO projects that public option premiums would be somewhat higher than average private insurance premiums due in part to attracting a less healthy pool of enrollees.  By 2019, about 30 million would purchase coverage through exchanges, including 6 million electing the public option.

Subsidies: Individuals and families 150% - 400% of the federal poverty level (FPL) would be federally subsidized when they purchase insurance through an exchange. Premiums would vary by geographic area to reflect differences in average spending and would also vary by age. The maximum enrollees would have to pay would range from 1.5% for those up to 133% of FPL to 12% for those up to 400% of FPL.   CBO Table Showing Average Premium Subsidies and Cost-Sharing

• Example: A family of four with income of $54,000 (225% of FPL in 2016) could expect to pay a premium of about $3,900 (after getting a premium subsidy of 74%) and could expect to pay another $2300 in cost sharing, for a total of $6,200 or about 11 percent of income.

Medicaid expansion: Starting in 2013, nonelderly with incomes below 150% of FPL would be eligible for Medicaid -- a major change from the patchwork eligibility rules currently in place. By 2019, 15 million more enrollees in Medicaid.  Federal government would pay on average 91% of the new Medicaid coverage costs (as compared with an average federal contribution of 57% currently). 

New Long-Term Care Entitlement (CLASS):  The bill would establish a voluntary federal program for long-term care insurance that would show net deficit reduction of $72 billion over the first 10 years (due to premiums exceeding benefits in the early years.)  However, CBO projects that "in the decade following 2029, the CLASS program would begin to increase budget deficits."  See Concord Coalition Statement on the CLASS legislation

Reducing Health Care Expenditures: Promote efficiency through HHS promulgating standards for electronic transactions; facilitate the use of "follow-on" (generic) biologics; inject competition into the health insurance market through the health exchange public option which CBO says would "place some downward pressure on the premiums of private plans operating in the exchanges."

No Physician Pay Fix:  Unlike the previous House versions of health reform, this new House version would not fix the Medicare physician payment system (known as sustainable growth rate or "SGR") even though it is widely accepted that Congress will overturn the scheduled physician pay cuts. (Current law calls for a 21% reduction in physician payment rates in 2010.) The prior House bill (HR 3200) would have fixed the SGR at a cost of $245 billion. Omitting an SGR fix therefore understates the cost of health reform by nearly $250 billion.  Concord Coalition Says that Doc Fix Should be Paid For

State Medicaid Assistance: The bill would extend for 6 months a provision that requires the federal government to pay a larger share of Medicaid costs through what is known as the Federal Medical Assistance Percentage (FMAP).  This is designed to provide further recession relief to cash-strapped state government at a cost of $23 billion.

Concord Coalition Side-by-Side Comparison of House Leadership bill and Emerging Senate bill

As noted in the preceding article, CBO's projection that new spending under the House health reform bill will not cause outyear deficits is based on  the arguably shaky assumption that "Medicare spending would increase at an average annual rate of roughly 6% during the next two decades--well below the roughly 8% annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires."

This assumption is of particular concern given recent history -- i.e., the adoption of Medicare physician payment restraints in the Balanced Budget Act of 1997, that have been overriden by Congress in each of the last 8 years.

Moreover, the House health reform bill is based upon the unrealistic assumption that Medicare's payment rates for physicians' services will drop sharply for much of the coming decade (under the Sustainable Growth Rate schedule referred to in the preceding article). 

Consequently, the House should include in its health reform bill the establishment of an Independent Medicare Commission, as recommended by the President and Senate Finance Committee.  See "The Importance of a Cost Control Enforcement Entity in Health Care Reform Legislation"

Moreover, it might be prudent for Congress to include in health reform a "fail-safe mechanism" designed to ensure that if cost-saving offsets do not materialize as currently projected, an automatic mechanism would maintain health reform's deficit neutrality.  There are a variety of ways to construct a fail-safe mechanism.  For example: a fail-safe mechanism could task the Office of Management and Budget (OMB) with establishing a baseline of current projections for health reform legislation--with annual assessments of where federal health expenditures and offsets stand in relation to the initial projections.   

If health reform is falling short of baseline projections and leading us into deeper deficits, a fail-safe mechanism could require OMB to implement a series of legislatively prescribed measures, or alternatively, a review commission could be tasked with developing offsetting measures to submit to Congress for a required vote. 

Obviously, finding the right mix of automatic adjustments or developing a package of offsetting measures would be challenging--both technically and politically--but similar mechanisms have been successful in the past, for example, under the Budget Enforcement Act of 1990.  

See the letter from Concord Coalition co-chairs and former Senators Bob Kerrey and Warren Rudman, stating in part that "there will be an ongoing need to ensure that assumed savings are realized, guard against unintended consequences, and provide a means to implement future 'curve bending' reforms."  

See also the Concord Coalition's October 9, 2009 Letter to Senate Majority Leader Harry Reid.

House Floor Action Delayed Due to Abortion and Immigration Concerns

Congressional Quarterly reports that "differences among House Democrats over issues related to abortion and immigration have forced Democratic leaders to delay floor action on health care legislation until the end of the week."  However, whenever the House Floor debate takes place, it is unlikely to exceed one or two days due to the ability of the Rules Committee (acting on behalf of the Speaker) to limit Floor debate and amendments -- unlike the Senate where the measure will be open to unlimited debate and amendments.

House Republicans are reportedly close to releasing their own version of health reform which they hope to offer as a substitute amendment when the House takes up health reform.  Kaiser Health News article on House GOP plan

Senate Floor Action Delayed due to CBO Scoring Issues and Dissent over Public Option

According to Congress Daily, Senate Majority Leader Harry Reid (D-NV) is not expected to receive until next week Congressional Budget Office (CBO) scoring which he needs to complete his health reform bill.  Reid and his staff are in the process of merging the Senate Finance and HELP (Health, Education, Labor, and Pensions) Committee bills into a final product that can garner 60 votes in the Senate (to invoke cloture and stop a Republican filibuster).  Time is running short for Reid to bring a bill to the Senate Floor before Thanksgiving -- a necessity if House and Senate Democrats expect to move a bill through a House-Senate conference in December.

Overcoming the 60-vote hurdle will be difficult in view of statements by several Senate Democrats that they cannot support a bill that includes a public option.  Most recently, Senator Lieberman's (I-CT) communications director reiterated the Senator's position that he will not support any bill containing a public option.  Similar statements have been made by Senators Ben Nelson (D-NE), Blanche Lincoln (D-AR), and Mary Landrieu (D-LA). 

Landrieu has recently indicated that she is working with Sen. Olympia Snowe (R-ME) on an amendment that would tie a public health insurance option to a trigger.  "If the private market fails to perform or refuses to perform then there could be a fallback option....It should be triggered by choice and affordability, not by political whim," Landrieu said.

If Reid is unable to construct a compromise bill that can garner 60 votes, Democrats may still have to resort to a filibuster-proof budget reconciliation bill that requires only a simple majority of 51 votes in the Senate.  The downside of Reconciliation is that the bill could include only provisions that have a federal budget impact, which means that many of the insurance sector reforms (such as prohibitions on pre-existing condition restrictions, and annual and lifetime benefit limits) would have to drop out of the bill.

Unemployment benefits, Homebuyers Tax Credit, and Recession Relief for Businesses

Extension of expiring unemployment benefits were stalled for close to two weeks due to disputes between Senate Democrats and Republicans over what amendments Republicans would be permitted to offer.  However, on Monday the Senate voted to invoke cloture (i.e., bring debate to a close) on a substitute amendment that would extend unemployment benefits and also includes extension of the expiring $8,000 first-time homebuyers tax credit. 

The unemployment measure would allow workers in all 50 states to draw 14 weeks of federal unemployment benefits after exhausting their regular 26 weeks of state compensation.  It would also provide an additional six weeks in states with unemployment rates higher than 8.5%.  By contrast, the House version of the bill would provide an additional 13 weeks of benefits only to people in high-unemployment states.

The measure also includes a "5-year net operating loss carryback provision" that would allow businesses currently operating at a loss to offset their losses against taxes paid in previous years, generating a tax refund.

Offsets:  The unemployment extension would be paid for by an extension of the Federal Unemployment Tax Act.  The homebuyers credit and the net operating loss carryback provision would be paid for by delaying the effective date of a law that gives multinational corporations more flexibility in how they handle their interest expenses, and an increase in penalties on companies that fail to file a partnership or S corporation federal tax return.

Baucus-Reid Release on Unemployment Extension-Homebuyers Credit Measure

JCT Revenue Estimate

EPA Budget Gets a Boost

The Environmental Protection Agency budget got a big boost on October 30 when the President signed the FY 2010 Interior-Enivornment Appropriations Act.  The funding bill increased EPA's regular budget from $7.6 billion in FY 2009 to $10.3 billion in FY 2010 -- almost a one-third increase.   Significant increases went to drinking water and wastewater systems; protection of the Great Lakes, San Francisco Bay, Puget Sound, and the Chesapeake Bay; toxic site cleanup; and climate change programs.  According to Congressional Quarterly, EPA's budget rose 82% between 1978 and 2008, compared with a sixfold increase in total federal outlays.

Summary of Interior-Environment Conference Report

GAO Recommends that Treasury Lengthen Maturity Dates

In a recent report, the Government Accountability Office (GAO) noted that "debt held by the public will double in 5 years (from 2008 to 2013) and almost triple in 11 years (from 2008 to 2019) -- reaching 82 percent of GDP."  GAO recommends that "in order to meet these challenges Treasury needs to diversity its funding sources and lengthen the term-to-maturity of its debt portfolio" in order to take advantage of currently low interest rates.  Specifically, the GAO recommends issuing more inflation-indexed securities (TIPS) which pay a lower interest rate in exchange for inflation protection.

GAO Report

House Dems Introduce New "Doc Fix" Bill including Statutory PAYGO

With the recent failure in the Senate of legislation to repeal the current Medicare physician payment system (known as Sustainable Growth Rate, or "SGR"), House Democrats introduced a new bill (HR 3961) on October 29 that would eliminate the current system and replace it with payment updates based on inflation.  The bill does not include any offsets and would likely have a 10-year cost close to $250 billion.  However, the bill would re-enact statutory PAYGO legislation requiring all future tax cuts and mandatory spending increases to be offset. 

The Concord Coalition strongly supports re-enactment of statutory PAYGO, but has also called on Congress to fully offset the cost of fixing the Medicare physician payment system.  Concord Coalition Statement

Overview

Last Friday, the President signed the Interior-Environment Appropriations Act that also included a 2d continuing resolution to keep agencies without FY 2010 appropriations authority operating through December 18, 2009.  Thus far, Congress has completed action on 5 of the 12 regular appropriations bills: Agriculture, Energy-Water, Homeland Security, Interior-Environment, and Legislative Branch.

REVISED House Subcommittee (302(b) Allocations (among the 12 appropriations subcommittees)

Senate Subcommittee (302(b) Allocations (among the 12 appropriations subcommittees)

Click on the dates below for links to bill summaries.  If you have trouble with the Senate links download the most recent version of Adobe Acrobat Reader or go to http://appropriations.senate.gov/ and click on "Subcommittees" for links to the documents.

*polled out (no formal subcommittee vote)

Earmark Disclosure

Earmark lists are available on the House Appropriations subcommittee websites and Senate earmark requests are available on the Senate Appropriations website.

Important Note

Following are links to the latest congressional action, plus a sampling of issues facing the appropriators as reported by Congressional Quarterly and Congress Daily. The numbers in parentheses are the FY 2009 regular appropriations level in billions (not including stimulus funds); the President's FY 2010 request; the House FY 2010 level; and the Senate FY 2010 level; and the Conference Report FY 2010 level.

OMB SAPS

Statements of Administration Policy (SAPS) on the Appropriations Bills are available by clicking here.

Appropriations Bills
 

1. AGRICULTURE ($21.4 / P-$23.6 / H-$22.9 / S-$24.0 / C-$23.3) -- Major issues include increasing FDA funding; overhaul of the food safety system; whether to continue a ban on importation of Chinese poultry; a controversial animal identification system that grew out of concerns about mad cow disease; the President's proposal to end direct payments to farmers with more than $500,000 in annual sales revenue; and the allocation of funding between rural issues and FDA.  Summary Table  House Bill Summary   Senate Bill Summary

2. COMMERCE-JUSTICE-SCIENCE ($57.7 / P-$64.6 / H-64.4 / S-$64.9) --  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; patent examiners working upaid overtime leading to turnover; NASA's post-space shuttle priorities; and a program to help states defray the costs of jailing illegal immigrants convicted of crimes. Summary Table    House Bill Summary   Senate Bill Summary

3. DEFENSE ($631.9 / P-$640.1 / H-636.3 / S-636.3) not including military construction and housing which are funded in the Mil Con-VA bill -- Major issues include terminating the F-22 fighter program which has been plagued with operational problems and cost over-runs; McCain amendment to eliminate unrequested C-17 cargo aircraft; funding for a 2d engine for the F-35 Joint Strike Figher program; funding for the C-17 transport plane, the VH-71 presidential helicopter and the Missile Defense Agency's Kinetic Energy Interceptor--all of which the Administration wants to end; proposed cuts in the Army's Future Combat Systems; and rising personnel costs.  (Note: the Administration has threatened to veto the Defense Authorization bills if they authorize further funds for the F-22 or disrupt the F-35 program.)   House Bill Summary   Senate Bill Summary

4. ENERGY-WATER ($33.2 / P-$34.4 / H-$33.3 / S-$34.3 / C-$33.5) --  Major issues include how to fund the backlog of Army Corps water infrastructure projects; Defense environmental clean-up; funding for the Administration's "Re-Energyse" proposal (energy innovation centers); how to continue the big boost in renewable energy research after the stimulus bill's funds run out; funds to dispose of weapons grade plutonium under a new agreement with Russia; streamlining approval of new nuclear reactors; and the President's proposal to cut funding for the proposed nuclear waste facility at Yucca Mountain.  House Bill Summary  Senate Bill Summary

5. FINANCIAL SERVICES-GENERAL GOVT ($22.6 / P-$24.2 / H-$24.15 / S-$24.4) -- Major issues include U.S. policy toward Cuba; education vouchers in the District of Columbia; IRS funding; funding for states to upgrade voting equipment; and a provision requiring GM and Chrysler to reinstitute agreements with certain auto dealerships. Summary Table   House Bill Summary  Senate Report

6. HOMELAND SECURITY ($40.0 / P-$42.8 / H-$42.6 / S-$42.9 / C-$42.8) -- Major issues include funding efforts to find and deport illegal immigrants; whether to further fortify the fence being built along 700 miles of the U.S.-Mexico border; whether to bar release of photos of terrorism detainees; allowing Gitmo detainees into the U.S.; whether the proposal to cut the DHS budget starting in 2012 is realistic; the system for providing federal disaster relief; reorganizing the Federal Protective Service; continuing an "antiquated" Coast Guard navigation system; and increased funding for road and rail security. House Bill Summary   Senate Bill Summary

7. INTERIOR-ENVIRONMENT ($27.6 / P-$32.3 / H-$32.3 / S-$32.1 / $32.2) --  Major issues include boosting EPA funding; earmarks for water projects; eliminating a program to clean up diesel engines in California; adequacy of wildfire funding; drilling in federal lands and waters; and new taxes and fees on the oil and gas industry. House Summary Table   House Bill Summary   Senate Bill Summary

8. LABOR-HHS-EDUCATION ($155 / P-$160.7 / H-$160.6 / S-$163.1) --  Major issues include rejecting the Administration's request to target NIH money at specific diseases; modifications and funding increases for the Pell Grant program; funding for school construction; increased funding for OSHA and LIHEAP; lifting a prohibition on federal funds for needle exchange; and eliminating abstinence-only sex education programs. Summary Table  House Bill Summary  Senate Bill Summary

9. LEGISLATIVE BRANCH ($4.3 / H-$4.9 / S-$4.5 / C-$4.7) -- Major issues include creating a fund to pay for renovation of the Capitol and House and Senate office building; and requests for more staffing at CBO and GAO.  House Bill Summary   Senate Bill Summary

10. MILITARY CONSTRUCTION - VA ($72.9 / P-$77.7 / $H-77.9 / S-$76.7) -- Major issues include advance appropriating FY 2011 funds for VA health care; BRAC funding; housing for trainees; more funds for VA health care for treatment that is not service-connected; and funding for Guard and Reserve initiatives. (Since Jan. 2007, Congress will have increased the baseline for the VA by $20 b, a 58% increase.)  House Bill Summary   House Summary Table   Senate Bill Summary

11. STATE-FOREIGN OPERATIONS ($50.0 / P-$52.0 / H-$48.8 / S-$48.7) -- Major issues include the President's proposed 9% increase for the State Dept. and foreign aid programs; conditions attached to funds for the World Bank and IMF; dropping the "Mexico City" policy that prohibited use of international family planning funds for abortion; funding for Millennium Challenge Corporation (aimed at countries that adopt democratic and free-market policies); and funding for the U.N. Population Fund (which is strongly opposed by anti-abortion groups). House Bill Summary   Senate Bill Summary

12. TRANSPORTATION-HUD ($55.0 / P-$68.9 / H-$68.8 / S-$67.7) -- Major issues include how to make up the shortfall in gasoline tax revenues flowing into the highway trust fund; funding for high speed passenger rail and a national infrastructure bank; funding for a new air traffic control system; additional funding for low-income housing rental vouchers; increasing loan guarantees through the FHA; and capital and safety improvements to Washington's metrorail system.   House Bill Summary    Senate Bill Summary