House Republicans Suggest Changes to Latest Health Reform Proposal

A letter sent to U.S. Representative John A. Boehner (R-Ohio) by the Congressional Budget Office (CBO) says the amendment contains several provisions that are intended to increase rates of insurance coverage by reducing its costs or subsidizing its purchase, including:

• Regulatory reforms in the small group and non-group markets, including establishing association health plans (AHPs) and individual membership associations, and allowing states to establish interstate compacts with a unified regulatory structure;
• A State Innovations grant program to provide federal payments to states that achieve specified reductions in the number of uninsured individuals or in the premiums for small group or individually purchased policies;
• Federal funding for states to use for high-risk pools in the individual insurance market and reinsurance programs in the small group market; and
• Changes to health savings accounts (HSAs) to allow funds in them to be used to pay premiums under certain circumstances, to make net contributions to HSAs eligible for the saver’s credit, and to provide a 60-day grace period for medical expenses incurred prior to the establishment of an HSA.

According to an assessment by the CBO and the Joint Committee on Taxation (JCT), enacting the amendment would result in a net reduction in federal budget deficits of $68 billion over the 2010 – 2019 period, the letter said. The estimate reflects a projected net cost of $8 billion over 10 years for the provisions directly related to insurance coverage, which reflects a gross cost of $61 billion that is partly offset by about $52 billion in additional revenues associated with the coverage provisions.

The letter included a caveat that the figures do not represent a comprehensive cost estimate for the amendment, and the analysis does not take into account all of the proposal’s effects on spending for other federal programs or the administrative costs for oversight and implementation. Nevertheless, the CBO stated, the estimates reflect the major net budgetary effects of the proposal.

The CBO and JCT assumed that the amendment’s key provisions – including grant funds for high-risk pools and reinsurance programs and insurance market reforms – would become effective on the date of enactment, which is assumed to be in December 2009. Provisions establishing association health plans (AHPs) would become effective 12 months after the date of enactment.

In its letter regarding the proposed changes to the Affordable Health Care for America Act, the CBO said that by 2019, CBO and JCT estimate, the number of nonelderly people without health insurance would be reduced by about 3 million relative to current law, leaving about 52 million nonelderly residents uninsured. The share of legal nonelderly residents with insurance coverage in 2019 would be about 83%, roughly in line with the current share.

In addition, CBO estimates that the combination of provisions included in the amendment would reduce average private health insurance premiums per enrollee in the United States relative to what they would be under current law. In the small group market, which the letter said represents about 15% of total private premiums, the amendment would lower average insurance premiums in 2016 by an estimated 7% to 10% compared with amounts under current law.

In the market for individually purchased insurance, which represents a little more than 5% of total private premiums, the amendment would lower average insurance premiums in 2016 by an estimated 5% to 8% compared with amounts under current law.

In the large group market, which represents nearly 80% of total private premiums, the amendment would lower average insurance premiums in 2016 by about 3%, according to CBO's estimates.

Other provisions of the amendment to the Affordable Health Care for America Act (H.R. 3962) proposed by House republicans would alter federal spending and revenues in significant ways, the CBO said in a letter to Representative John A. Boehner (R-Ohio).

The key provisions include:

• Limits on costs related to medical malpractice ("tort reform"), including capping noneconomic and punitive damages and making changes in the allocation of liability. CBO expects that those limits would reduce health care costs directly - by reducing premiums for medical liability insurance and associated costs - and indirectly by slightly reducing the utilization of health care services. Over the 2010 - 2019 period, those changes would reduce spending on mandatory programs by about $41 billion and would increase revenues by $13 billion as an indirect effect of reducing the costs of private health insurance plans (which would result in a shift of some workers' compensation from nontaxable health insurance benefits to taxable wages).
• Requirements that the Secretary of Health and Human Services (HHS) adopt and regularly update standards for electronic administrative transactions that enable electronic funds transfers, claims management processes, and verification of eligibility, among other administrative tasks. Those provisions would result in about $6 billion in federal savings in Medicaid. In addition, those standards would result in an increase in revenues of about $13 billion as an indirect effect of reducing the costs of private health insurance plans.
• Establishment of an abbreviated approval pathway for follow-on biologics (biological products that are highly similar to or interchangeable with their brand-name counterparts), which would reduce direct spending by an estimated $5 billion and increase revenues by about $1 billion over the 2010-2019 period.
• An increase in funding for HHS's investigations into fraud and abuse, which would increase direct spending by an estimated $3 billion during the next 10 years.

In total, the letter said, the CBO estimates the provisions of the amendment not directly related to insurance coverage would reduce direct spending by $49 billion, on net, over the 2010-2019 period and would increase revenues by $27 billion.

The CBO's letter is here .