On November 21, 2009, the Senate voted 60-39 to begin debate on Senate Majority Leader Harry Reid's new Senate version of health reform that merges and refines the bills reported by the Senate HELP Committee in July and the Senate Finance Committee in October.  Reid needed 60 votes to end a Republican filibuster of the motion to proceed to the bill.  The vote was strictly party line, with Independent Joe Lieberman (I-CT) voting with the Democratic Caucus.

Although Reid was able to assemble 60 votes to begin debate on health reform, there remains significant doubt on whether he can assemble 60 votes for final passage.  In particular, Senator Lieberman has said that if the public option remains in the bill, he will vote against final passage.  Senators Blanche Lincoln (D-AR), Mary Landrieu (D-LA), and Ben Nelson (D-NE) have expressed similar reservations. 

One wild card is that Republican Senator Olympia Snowe (R-ME) has indicated that she may vote for the bill if the public option is made contingent on a "trigger" that would activate that public option only if there are insufficient private insurance options available through the insurance exchanges.  However, while the use of a "trigger" could secure Snowe's vote, it could also jeopardize support from many liberal Democrats who insist on a public option being part of the bill.

In addition to the political complexities of the public option, Reid's health reform plan could be amended during Floor debate and significantly changed in ways not yet anticipated--adding additional uncertainty to final passage. 

For example, fiscal conservatives may insist that the Independent Medicare Advisory Board and excise tax on high-cost "cadillac" insurance plans be strengthened and remain in the bill, both as an offset for coverage expansion and a downpayment on urgently needed entitlement reform.

In a nutshell, the Reid health reform plan as it currently stands would: 

(1) beginning in 2014, establish a mandate for most legal residents of the US to obtain health insurance or pay a penalty;

(2) require employers (except small businesses) to offer insurance or pay a fee;

(3) bar private insurers from discriminating against individuals having pre-existing conditions or setting premiums based on differences in health; 

(4) expand access to coverage by broadening Medicaid for poor Americans and establishing insurance "exchanges" through which low-income individuals/familes could purchase insurance with the aid of federal tax credits/subsidies; and  

(5) pay for the new subsidies and Medicaid coverage by (i) cutting projected Medicare payments to health providers; (ii) imposing an excise tax on high cost "cadillac" insurance plans; (iii) increasing the Medicare payroll tax from 1.45% to 1.95% for income above $200,000; and (iv) other offsets summarized in the Concord Coalition health reform side-by-side.

CBO released on November 30 an analysis of the impact of the Reid plan on health insurance premiums and found that: (1) "the amount that subsidized enrollees would pay for nongroup coverage would be roughly 56% to 59% lower, on average, than the nongroup premiums charged under current law"; (2) "in the small group market...the change in the average premium per person resulting from the legislation could range from an increase of 1% to a reduction of 2% in 2016"; and (3) "in the large group market...the legislation would yield an average premium per person that is zero to 3% lower in 2016."   CBO Analysis

Next Steps

The Senate begins general debate on health reform this week.  Senate Floor debate is likely to take several weeks -- with Senator Reid aiming for final passage of the Senate bill before Christmas.

If Reid is able to garner 60 votes for final passage, the next step will be a House-Senate conference committee to resolve all differences between the House-passed and Senate-passed bills.  There are already significant differences between the two bills, and changes on the Senate Floor are likely to add to the differences.  The conferees will have the difficult task of developing a compromise bill that can simultaneously garner 218 votes in the House and 60 votes in the Senate (to overcome a filibuster). 

• However, if Senator Reid is not able to garner 60 votes for passage of his plan by the Senate, congressional leaders will have to re-group and use the budget reconciliation process -- under which a bill cannot be filibustered thereby reducing the vote threshold to 50 votes.  However, the downside of utilizing budget reconciliation is that the bill could not include any provisions that do not have a federal budgetary impact -- which would require that many of the key private insurance reforms would have to drop out of the bill, and be considered in a separate measure.

Democratic congressional leaders and the White House are now aiming for final passage of a conference report by the House and Senate in time for the President to sign the bill prior to the State of the Union Address in late January.

(See below for a comparison of the Reid bill and the House-passed health reform bill.)

Here is a link to the Concord Coalition side-by-side comparing the House-passed and Senate (Reid) health reform bills.  In a nutshell:

The Senate bill would increase coverage of legal, nonelderly from 83% to 94% by 2019, while the House bill would increase coverage to 96%.

The Senate bill does far more for health care cost containment by imposing an excise tax on high-cost "cadillac" health insurance plans and establishing an Independent Medicare Advisory Board with authority to implement cost saving measures (though the Commission's scope and authority should be strengthened).  Both bills seek to scale back future Medicare provider payments to reflect "productivity improvements" and by experimenting with new methods of payment, such as "bundling."  Both bills also seek additional cost containment from administrative simplification and/or setting standards for electronic transactions.

The Senate bill's total cost would be $848 billion over 10 years for subsidies, Medicaid expansion, and small employer tax credits, while the House bill's gross cost would total $1.052 trillion.

The Senate bill is projected by CBO to reduce the deficit by $130 billion in the first 10 years, with small deficit reductions in the outyears if all provisions continue to be fully implemented. The House bill is projected to generate $138 billion of deficit reduction in the first 10 years, with "slight reductions" in the outyears.  However, some of the projected deficit reduction in both bills is artificial due to the inclusion of "budget savings" from the CLASS long-term care bill, which saves money only because premiums accumulate several years before benefits begin to pay out; moreover, the CLASS bill may increase deficits in the outyears.

The Senate bill's major costs over 2010-2019 are subsidies ($447 billion), Medicaid expansion ($374 billion), small employer tax credit ($27 billion), and a new prevention and public health fund ($15 billion).  The House bill's major costs are subsidies ($602 billion), Medicaid expansion ($425 billion), increased Medicare payments ($57 billion), and small employer tax credit ($25 billion).

The Senate bill's major offsets are reductions in Medicare fee for service payments ($192 billion), a 40% excise tax on high cost "cadillac" plans ($149 billion), reduction in Medicare Advantage subsidies ($118 billion), various fees on manufacturers, importers and health insurers ($102 billion), an increase in the Medicare payroll tax for high income earners ($54 billion), a reduction in Medicare and Medicaid DSH payments ($43 billion), and penalty payments by employers and uninsured individuals ($36 billion).  The House bill's major offsets are a 5.4% surtax on the wealthy ($460 billion), reductions in Medicare fee for service payments ($228 billion), reduction in Medicare Advantage subsidies ($170 billion), and penalty payments by employers ($135 billion).

Both bills would expand Medicare Part D coverage in order to reduce or eliminate the "doughnut hole," which is an entitlement expansion.  (Some might argue that the peculiar doughnut hole effect in Medicare Part D could have been corrected without expanding the overall entitlement.)

Both bills require individuals to purchase health insurance, but the House requirement begins in 2013 and the Senate in 2014.

Both bills include "play-or-pay" provisions requiring employers to provide insurance or pay a penalty, although the House has a higher penalty.

Both bills exempt small businesses from play-or-pay and provide tax credits to assist those wishing to offer insurance.

Both bills require private insurers to accept all applicants regardless of pre-existing conditions and prohibit insurers from varying premiums to reflect differences in enrollees' health (except for tobacco use).

Both bills prohibit annual and lifetime limits on benefits.

Both bills would cap out-of-pocket spending in order to prevent medical bankruptcies, although the limits on out-of-pocket costs are different.

The Senate bill would require each State to set up insurance "exchanges" through which individuals and families could compare plans and receive subsidies, while the House bill would set up a national "health insurance exchange."

The Senate bill would provide subsidies in the form of refundable tax credits for individuals and families between 133% and 400% of the federal poverty level (FPL), while the House bill would provide "affordability credits" for people between 150% and 400% of the FPL.

The House bill would include in the national exchange a national public health option administered by HHS, and the Senate would likewise establish a national plan but would allow States to opt out.

Both bills would allow states to form compacts to permit cross-state sale of health insurance.

The Senate bill would expand Medicaid in 2014 by covering all people with incomes up to 133% of FPL, while the House would expand coverage beginning in 2015 and cover people up to 150% of FPL (thereby dovetailing with the subsidies).

The Senate bill would require the federal government to cover most of the costs of the Medicaid expansion (90%), while the House would cover 91% -- with states picking up the remainder.

Both the House-passed health reform bill, as well as the Reid bill in the Senate, would rely in part on reductions in future Medicare expenditures to help fund the expansion of health care coverage in a deficit-neutral manner. 

Specifically, according to CBO, the costs of the House-passed bill would be partially offset over FY 2010-2019 by $228 billion in reductions in annual market basket fee for service payment updates--to reflect increases in productivity.  Similarly, the costs of the Senate (Reid) bill would be partially offset by reductions in Medicare updates of $192 billion over 10 years.

In November, the nonpartisan Chief Actuary of the government's Centers for Medicare & Medicaid Services (CMS) released a technical analysis of the House-passed health reform bill that casts some doubt on whether these Medicare cost savings would ever materialize.  The memorandum states in part:  

Reductions in Medicare payments:  "It is important to note that the estimated savings shown in this memorandum for one category of Medicare proposals may be unrealistic. H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute care hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide productivity gains. While such payment update reductions would provide a strong incentive for institutional providers to maximize efficiency, it is doubtful that many could improve their own productivity to the degree achieved by the economy at large. Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the providers' costs of furnishing services to beneficiaries. Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries). While this policy could be monitored over time to avoid such an outcome, so doing would likely result in significantly smaller actual savings than shown here for these provision."

Cost of Afghanistan Escalation

With the President's announcement last night of an escalation of the U.S. military commitment in Afghanistan, White House Press Secretary Robert Gibbs said that ballpark costs of about $10 billion per 10,000 troops were still vaild, as reported by Congressional Quarterly.  President Obama called for an increase of 30,000 U.S. troops in Afghanistan, in addition to the 68,000 troops already there.  Gibbs said "We aren't going to be there forever. And we can't. We don't have the resources -- manpower or budgetarily -- to be primarily responsible for the security of Afghanistan."  At the same time, key Democrats on the Hill are raising questions about how to pay for the Afghanistan surge.  See House Appropriations Committee Chairman Dave Obey's (D-WI) statement.

President's Speech on Afghanistan

Fiscal Impact of 2009 Stimulus Bill; Another Stimulus Bill?

In a report released yesterday, CBO estimated that "in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the U.S., and real gross domestic product (GDP) was 1.2% to 3.2% higher, than would have been the case in the absence of" the stimulus legislation.   CBO Report on Impact of Stimulus Bill

Responding to the double digit unemployment rate, House Democrats are aiming to pass a jobs measure prior to adjourning this month, although the Senate is unlikely to take up the bill before January due to its focus on health reform legislation.  According to Congressional Quarterly, due to widespread deficit concerns one idea being floated as an alternative to a separate stimulus bill is to "front load" the impending multiyear highway bill so that funds spend out more quickly than usual.  The budgetary effect would be larger deficits in FY 2010 and FY 2011 than previously projected. 

Other stimulus proposals under consideration would further extend unemployment benefits; extend federal COBRA (health insurance continuation coverage) subsidies for unemployed workers; provide more assistance to states; enact a jobs tax credit and an investment tax credit for small businesses.

House Passes Medicare Doc Fix and PAYGO

The House voted November 19 to block a scheduled cut in Medicare payments to physicians and establish a new physician payment formula moving forward.  The measure (HR 3961) passed 243-183 with all but one Republican voting against the bill. 

The bill would prevent a 21% pay cut required by a 1997 formula set up to restrain Medicare costs.  With the exception of 2002, each time the restraints were to take effect, Congress has stepped in to block the cuts -- leading to the burgeoning size of the required cuts relative to the baseline.   CRS background on Medicare's "Sustainable Growth Rate" formula for physician pay

The new formula -- to replace the 1997 formula -- would allow physicians regular, inflation-adjusted increases in Medicare payments.

The White House supported the House bill, warning that a large cut in Medicare pay "could reduce access to physicians for Medicare beneficiaries throughout the country."

In an effort to garner the votes of fiscally conservative House Blue Dog Democrats, the leadership added language to the "doc fix" that would reestablish the statutory pay-as-you-go (PAYGO) requirement that all future mandatory spending increases and tax cuts be fully offset. 

However, the bill is unlikely to move forward in the Senate, where fiscal conservatives recently blocked a similar measure because the $210 billion 10-year Medicare cost was not offset.   Senate fiscal conservatives, including Budget Chairman Kent Conrad (D-ND) also object to the House statutory PAYGO legislation because it would exempt from the PAYGO requirement the massive costs associated with extending most of the Bush tax cuts, fixing the Alternative Minimum Tax (AMT), fixing the estate tax rates, as well as fixing the Medicare physician pay system. 

The Concord Coalition supports extension of statutory PAYGO, but opposes exemption of the Bush tax cut extension, the AMT fix, the estate tax fix, and the "doc" fix from the pay-as-you-go requirement which would amount to a free pass for more than $3 trillion in new deficit spending.

Deficit Reduction Commission and Debt Ceiling

Following are links to testimony delivered in November at the Senate Budget Committee hearing on proposals to establish a bipartisan deficit reduction commission or task force. Interest in a commission or task force is gaining steam with an upcoming vote in December to raise the nation's debt ceiling, as well as widespread uneasiness in Congress about heading into next year's election cycle without progress on the explosion of debt and interest payments.  (On the current budgetary trajectory as set forth in the President's FY 2010 budget, OMB projects that by 2013 interest payments will equal one-third of total federal individual income tax collections.)  However, congressional leadership may sidestep a debt ceiling debate by adding the debt ceiling increase to an omnibus FY 2010 appropriations bill.  (See Appropriations Tracker below.)   Treasury's Debt Subject to Limit Graph

Chairman Conrad's Opening Statement
Senator Lieberman's Testimony
Senator Voinovich's Testimony
Senator Bayh's Testimony
Rep. Cooper's Testimony
Rep. Wolf's Testimony
Walker Testimony
Holtz-Eakin Testimony
Galston Testimony
MacGuineas Testimony

White House Tax Report Delayed

White House tax reform panel Chairman Paul Volcker has announced postponement of the report on tax overhaul options until sometime early next year.  The panel was to have released its report on December 4.  Tax reform has been cited as one component in addressing persistent gaps between federal spending and revenues.  However, critics have attacked the panel as a waste of time due to the constraint that the panel not raise taxes on American families earning less than $250,000.  Current projections are that the ongoing budget gap will add more than $9 trillion to federal debt held by the public by 2019.

White House Web Videos of Public Tax Panel Meetings:  Sept. 30      Oct. 16       Nov. 2

Pew Report: Nine States Face Budget Crises of Californian Magnitude

Last month, the Pew Center on the States released a new report concluding that "the same pressures that drove (California) toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country."   Highlights of the report follow:

Pew found severe budget troubles in California's neighbors--Arizona, Nevada, and Oregon--as well as Florida, Illinois, Michigan, Wisconsin, New Jersey and Rhode Island.

Impact on federal fiscal policy: "The 10 states account for more than a third of America's ppopulation and economic output. And actions taken by state governments to balance their budgets--such as tax increases and drastic spending cuts--can slow down the nation's economic recovery."

Pew came up with its list of 10 states based on six key factors in California's fiscal crises: (1) high foreclosure rates; (2) increasing joblessness; (3) loss of state revenue; (4) the relative size of deficits; (5) obstacles to balanced budgets such as supermajority requirements to increase revenues or adopt a budget; and (6) poor money-management practices.

Federal stimulus money that helped states cover some expenses starts running out at the end of 2010.  At the same time, revenues lag because of ongoing unemployment.

Even with federal stimulus money, states struggled to close an estimated $162 billion in deficits for FY 2010.

"The report makes clear that the recession severely impacted states from different geographic regions with different types of economies, tax structures and political leanings."

Text of the full report: Beyond California -- States in Fiscal Peril

Overview

On October 30th, 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 only 5 of the 12 regular appropriations bills: Agriculture, Energy-Water, Homeland Security, Interior-Environment, and Legislative Branch.

Since the Senate will be reserving most of its Floor time this month for the health reform legislation, the remaining 7 appropriations bills are likely to be packaged into an omnibus appropriations measure for consideration before Congress adjourns prior to Christmas.

In a recent analysis, the Senate Budget Committee's Minority Staff found that few of the Administration's proposed reductions and terminations of discretionary spending programs were adopted by the Appropriations Committees.   Budget Committee Minority Staff Analysis

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. 

*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