October 24, 2014

Initial Thoughts on the House Health Care Reform Bill

Here are a few initial thoughts from The Concord Coalition about the House of Representatives health care bill (H.R. 3962) and the preliminary scoring of that bill by the Congressional Budget Office (CBO):

  • It does not appear that this bill would alter the unsustainable trend of federal health care spending, often referred to as “bending the cost curve.” [1] According to CBO, “On balance, during the decade following the 10-year budget window, the bill would increase both federal outlays for health care and the federal budgetary commitment to health care, relative to the amounts under current law.” [2]
  • CBO does not make a projection of national health care expenditures (public and private) and it’s unclear if the bill would have a major impact on lowering private costs. All the usually discussed efforts to accomplish that are present in the bill, (accountable care demonstration project; medical home pilot, comparative effectiveness research and wellness,) but these score as a cost in the first 10 years. CBO does not include a specific analysis of how these initiates might play out over time and it would, in fact, be very difficult to do so. Thus, the long-term effect of these policies is highly uncertain, at best. This is the risk of expanding coverage before testing cost containment strategies.
  • The claim of 10-year deficit reduction is largely based on excess Community Living and Assistance Services and Support (CLASS) Act premiums (69 percent of the total) that do not represent a “savings.” It’s a repeat of the Social Security cash surplus “raid.” In other words, the CLASS provision does not reduce costs, but instead lays a foundation for future costs.
  • The long-term deficit reduction estimated by CBO is hardly of curve-bending proportions (0 to 0.25 percent of GDP) and highly dependent on maintaining aggressive Medicare provider payment restrictions (including a 21 percent cut for doctors under the sustainable growth rate) and a surtax on wealthy taxpayers (5.4 percent at $500,000 AGI for individuals; $1,000,000 for joint returns).

    • The first of these is unlikely to happen, particularly in the absence of a Medicare Commission (such as that contained in the Senate Finance bill) to monitor costs and recommend new savings with an up-or-down vote in Congress.
    • The second is a simple tax increase, which unlike the Finance Committee’s surtax on high-cost health care plans is unrelated to health care costs. It would bring in revenue ($461 billion over 10-years) but do nothing to encourage lower spending on health care (i.e., no curve-bending potential).
  • Additional savings come from shifting more people to Medicaid than in the original proposal and having the states pick up some of the tab for the new enrollees (9 percent instead of nothing).
  • The deficit reduction path is hardly a smooth one. The entire 10-year deficit reduction of $104 billion comes in the first five years. After that it is a wash, which does not bode well for the longer-term outlook.
  • There would be no deficit reduction if they still included the Medicare “doc fix” (SGR). Including that provision, the bill would have a deficit of $141 billion.
  • As noted above, the absence of a Medicare commission is a large and costly omission. Given the uncertainty of savings, some monitoring mechanism is essential. The failure of the House to include any such mechanism makes it all the more important for the Senate to include one in its bill and fight for it in conference.
  • The bottom line is that there is reason to be skeptical of the deficit-neutrality claims and, as we often point out, deficit-neutrality is not enough. More importantly, the bill certainly does not do enough, if it does anything, to bend the cost curve. Adding a commission would help, as would adopting the Senate’s surtax on high-cost health care plans.

[1] The CBO does not characterize policies as “bending the curve.”  In a letter to Senator Max Baucus, CBO Director Douglas Elmendorf wrote: “Although CBO can provide a rough indication of a proposal’s effect on the level of the budget deficit 20 years ahead, the agency does not have an analytic basis for projecting the proposal’s effect on the growth rate of the deficit at that point, much less for evaluating whether that growth rate will continue in future years. Those same considerations apply to the agency’s analysis of the federal budgetary commitment to health care. Therefore, CBO has concluded that it is more appropriate to talk about whether proposals would “lower” or “raise” the curve of the federal budget deficit or budgetary commitment to health care 10 to 20 years from now than to discuss those proposals’ effects on the shape of the curve in that time period or the level or slope of the curve beyond that period.” CBO letter to Senator Max Baucus, October 30, 2009, p.7.

[2] CBO letter to Rep. Charles B. Rangel, October 29, 2009, p.13.