Agencies Estimate Health Reform to Increase Deficit by $1T

June 17, 2009 ( - The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that the major provisions of the Affordable Health Choices Act proposed by the Senate Health, Education, Labor and Pensions Committee earlier this month would result in a net increase in federal deficits of about $1 trillion for fiscal years 2010 through 2019.

In a letter to Senator Edward M. Kennedy (D-Massachusetts), chairman of the Senate committee, the CBO pointed out that the provision in the proposed bill to subsidize the purchase of health insurance through exchanges for individuals and families with income between 150% and 500% of the federal poverty level represents the greatest single component of the proposal’s cost. The bill would establish a kind of clearinghouse, in which individuals and small businesses could shop for insurance, and would require individuals to obtain insurance (see Senate Democrats Make Health Reform Proposal ).

The letter said the subsidies would amount to nearly $1.3 trillion from 2010 to 2019, and the agencies estimate that the average subsidy per exchange enrollee (including those who would receive no subsidy) would rise from roughly $5,000 in 2015 to roughly $6,000 in 2019. In addition, the bill’s proposed credit for small employers who offer health insurance would also increase the federal deficit. The credit is estimated to cost $60 billion over 10 years.

According to the CBO and JCT, these costs would be partly offset by receipts or savings from three sources: increases in tax revenues stemming from the decline in employment-based coverage; payments of penalties by uninsured individuals; and reductions in outlays for Medicaid and CHIP (relative to current-law projections). The agencies explained that the proposal would not change the tax treatment of health insurance premiums, but the reduction in the number of people receiving employment-based health insurance coverage would affect the government’s tax revenues, as they estimate that wages and other forms of compensation would rise by roughly the amounts of any reductions in employers’ health insurance causing tax revenues to rise by $257 billion over 10 years.

The government would also collect the payments that uninsured individuals would have to make, which the CBO and the JCT staff assume would be relatively small (about $100 per person). Collections of those payments would total $2 billion over 10 years, the letter said. The agencies also explained that although the proposal would not change federal laws regarding Medicaid and CHIP, it would affect outlays for those programs. The CBO said it assumes that states that had expanded eligibility for Medicaid and CHIP to people with income above 150% of the federal poverty level would reverse those policies, because those individuals could instead obtain subsidies through the insurance exchanges that would be financed entirely by the federal government. Reflecting those reductions in enrollment, federal outlays for Medicaid and CHIP would decline by $38 billion over 10 years, it estimates.

The Effect on Coverage

The CBO said that once provisions of the Senate committee’s proposed health reform bill are fully implemented, there would be a net decrease in the number of people uninsured of about 16 million. The agencies explained that about 39 million individuals would obtain coverage through new insurance exchanges while the number of people who had coverage through an employer would decline by about 15 million (or roughly 10%), and coverage from other sources, such as Medicaid and CHIP and in non-group coverage, would fall by about 8 million because of the subsidies offered in the exchanges.

The CBO’s letter is here .