October 21, 2014

Washington Budget Report: Mar. 22, 2010

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The Concord Coalition's Washington Budget Report provides non-partisan, plain English information and analysis of federal budget issues and the serious fiscal challenges that face the country as the federal debt grows and the U.S. population ages. With this issue, we are introducing a revised format for the report that we hope you will find both interesting and informative. If you have any suggestions or comments, please send us an email at concordcoalition@concordcoalition.org.

Robert L. Bixby, Executive Director

Senate Health Care Bill Passes House, Reconciliation Measure Moves to Senate

Health Care Reform Costs

The House gave final congressional approval Sunday night to a bill with the stated goals of getting 32 million more Americans covered by health insurance, curbing rising medical costs, restricting unpopular insurance practices and raising additional taxes.

After the 219-212 vote on Sunday, House Democrats also passed a “reconciliation” package of amendments that the Senate plans to take up later this week. The reconciliation package is supposed to fix problems that some House Democrats had with the Senate-approved bill. The reconciliation bill would also revamp financial aid for higher education.

The Congressional Budget Office (CBO) estimated that the overall cost of the Democrats’ health care plan would be $938 billion over 10 years. But the CBO projected that this would be more than offset by additional taxes, other revenue and spending cuts. So if everything goes according to the letter of the law, the CBO says federal deficits could drop by $124 billion over the next decade and possibly by much more after that.

Much uncertainty surrounds these estimates, however. (See next article on the importance of cost control efforts.) In addition, $70 billion of the anticipated deficit reduction comes from premiums for a new public long-term care program (the CLASS Act), and that money is already fully committed to cover promised benefits.

Another fiscal question mark: Congress still needs to take up legislation to cancel scheduled cuts in Medicare payments to doctors. This change, which has bipartisan support, could cost taxpayers more than $200 billion over 10 years.

Different parts of the health care reform plan would begin at different times over the next few years. The ones with the largest fiscal impact would: (CBO dollar estimates over 10 years)

  • Provide subsidies to help many low- and middle-income people buy insurance. ($464 billion cost)
  • Require many businesses to offer employee health insurance plans or pay penalties. ($52 billion offset)
  • Require most Americans to buy health insurance or pay penalties. ($17 billion offset)
  • Extend Medicaid to cover people with incomes up to 133 percent of the federal poverty level. ($434 billion cost)
  • Raise the Medicare tax on high-income individuals and families. ($210 billion offset)
  • Eventually tax high-cost health plans that some employers offer, a step that many analysts consider essential to rein in medical costs. ($32 billion offset)
  • Increase prescription drug benefits in Medicare. ($43 billion cost)
  • Fund pilot programs and demonstration projects that could lead to better value in heath care. ($14 billion cost)
  • Create the Independent Payment Advisory Board (IPAB) to monitor health care costs and suggest improvements. ($16 billion offset)

The President plans to sign the health care bill on Tuesday, March 23. At that point, the Senate will take up the reconciliation package. This has the potential to be a long, drawn-out process because the rules regarding reconciliation disallow any provision interpreted by the Senate parliamentarian to be non-budget related. There will be numerous points of order and opportunities for amendment and if any succeed, the package would have to go back to the House for another vote. 

Cost Control Vigilance Now Becomes the Crucial Health Care Fight

The dramatic expansion of health care coverage that received final approval in Congress on Sunday means that controlling medical costs will be more important than ever. As The Concord Coalition has repeatedly pointed out, expanding coverage without curbing costs is a recipe for fiscal disaster.

The legislation promises significant savings through future reductions in Medicare provider payments. It also plants the seeds of many cost control strategies with pilot programs and demonstration projects. These may bear fruit at some future point but success is far from certain. It will require concerted and cooperative efforts by state and federal officials, hospitals, doctors, insurance companies and millions of patients. It will also require the political will to make the savings stick when they begin to pinch.

An obvious case in point is the new tax on high-cost insurance plans, which many analysts believe is the single most important cost control measure in the legislation. An amendment proposed by the House and expected to be approved by the Senate this week under the fast-track “reconciliation” process, moves the effective date of this tax from 2013 to 2018. There is reason to be skeptical that a future Congress and President will allow this tax to go into effect. Opponents are already pointing out that they will have plenty of opportunities to kill, or further dilute, the tax before then.

On the spending side, it will take considerable efficiency improvements and discipline to meet the new reimbursement standard for Medicare provider payments. Then there is the politically challenging provisions that would ratchet back the growth rate of subsidies for the purchase of insurance starting in 2019.

Attempts may also be made to further weaken the Independent Payment Advisory Board (IPAB), which has been established as a constant watchdog over growing costs. As for the pilots and demonstrations, there is no guarantee that they will work or that Congress will give them broader application if they do work.

So while robust deficit reduction projections from the Congressional Budget Office offer some reassurance about the legislation, there is a great deal of downside risk that these projections will prove to be optimistic.

And even if everything goes according to plan, the promised deficit reduction will be quite modest compared to the trillions of dollars that current projections indicate the country will add to its debt in the coming decade. Political leaders will still need to look for large amounts of additional savings and revenue –- both in the health care system and elsewhere. Moreover, they will have to do so with much of the potential savings having already been claimed for the expanded coverage in the new legislation.  

This is not the end of the cost control fight. It is a very tentative beginning.

Republican Congressional Leaders Make Appointments to Bipartisan National Commission on Fiscal Responsibility and Reform

Republican congressional leaders recently named six of their colleagues to the commission that President Obama hopes can chart a more responsible fiscal path for the country.

In discussing the commission’s work in the coming year, Republicans emphasized that they would focus on spending reductions rather than tax increases. Many experts on the federal budget caution, however, that both spending cuts and tax increases will be needed to bring down the huge projected deficits.

The six GOP lawmakers who were recently named to the commission: Senators Judd Gregg (N.H.), Mike Crapo (Idaho) and Tom Coburn (Okla.), and Representatives Dave Camp (Mich.), Paul Ryan (Wis.) and Jeb Hensarling (Texas).

The Concord Coalition and others called last year for the creation of a bipartisan fiscal commission that would make recommendations to Congress. After Congress failed to establish such a commission on its own, the President last month announced the formation of an 18-member panel that would issue recommendations by Dec. 1. Obama named former White House Chief of Staff Erskine Bowles and former Republican Senate Whip Alan Simpson as co-chairs.

The President charged the panel with finding ways to reduce deficits over the next few years as well as “meaningfully improve the long-term fiscal outlook.” Final recommendations can only be made with the approval of 14 of the 18 commission members.

Obama had previously named four other members: Alice Rivlin, budget director in the Clinton administration; Andrew Stern, president of the Service Employees International Union; David Cote, chairman of Honeywell International, and Ann Fudge, former president of Young and Rubicam Brands.

Last month Senate Majority Leader Harry Reid named three Democratic senators to the commission: Kent Conrad (N.D.), Max Baucus (Mont.) and Richard Durbin (Illinois). The final three spots are expected to be filled by House Speaker Nancy Pelosi soon.

Moody’s Warns U.S. on Its Triple-A Credit Rating

Moody’s Investment Service says the AAA credit rating of the United States could eventually be threatened if policymakers and other government officials are unable, or unwilling, to bring down federal deficits. According to a report released last week, the triple-A credit rating is premised on “debt reversibility,” or the ability of the government to restore fiscal soundness to its balance sheets after a crisis.

Along with other triple-A governments, the U.S. could see its rating downgraded unless it is able to rein in deficits by raising revenues or cutting expenditures, Moody’s said. On the other hand, pulling back stimulus spending too soon “could risk undermining the recovery, and thereby damage governments' power to tax.”

A credit downgrade would be a troubling and embarrassing event for the U.S.; Treasury securities have long been considered the safest in the world. A lower rating would also increase the government’s borrowing costs, leaving less money for other needs and making deficit reduction even more difficult.

The Moody’s report follows similar warnings this year from two other big ratings agencies – Standard & Poor’s, and Fitch Ratings – about the continuing growth of the federal debt.

The Congressional Budget Office estimates that under President Obama’s budget, the federal debt would grow from about 60 percent of the Gross Domestic Product (GDP) this year to 90 percent in 2020. Many economists believe that a figure above 60 percent entails significant risks for the U.S. economy.

President Signs Job-Creation Bill As Congress Considers Additional Legislation

Jobs Legislation

The President signed a $17.6 billion job-creation bill shortly after the Senate approved it last week. The measure exempts businesses from paying Social Security payroll taxes through the end of the year on newly hired workers who have been unemployed for at least 60 days. It also includes tax incentives for businesses that retain those workers for at least one year.

To give the President a bill he could quickly sign into law, this measure was chiseled out of a much larger jobs package that the House passed in December. On March 10 the Senate passed its own version of the more expansive House bill. The Senate bill, like the House bill, includes costly tax cuts Congress approves yearly (the so-called "tax extenders") as well as extensions of COBRA health insurance and unemployment benefits. These larger House and Senate bills are now in conference committee to reconcile their differences before the legislation can go to the President. Some of the offsets in the Senate version were used in health care reform legislation so lawmakers will need to find other offsets to pay for the jobs bill. 

While most of the job-creation measures before Congress include at least some revenue offsets, other legislation, such as a proposal by House Education and Labor Committee Chairman George Miller (D-Calif.), includes no offsets and would thus drive up the deficit. This bill has has been designated as “emergency” spending. This designation allows the bill to avoid pay-as-you-go requirements.