Thursday, October 8, 2009

Struggling With the CBO Score on the Senate Finance Committee Health Reform Bill

The Disease Management Care Blog checked out the Congressional Budget Office Director’s Blog for the skinny on the the scoring of the U.S. Senate Finance Committee’s health reform bill. According to media reports, over ten years it will simultaneously cost of $829 billion but ultimately save $81 billion.


Confused and armed with nothing but a virtual calculator, the DMCB read not only the Director's blog but headed on over to the CBO report. Here's the bottom line as best can be interpreted:

There would be $345 billion in additional outlays to the States for Medicaid and the Children’s Health Insurance Program (CHIP), $461 billion in commercial insurance subsidies and $23 billion in employer tax credits. That adds up to $829 billion.

Then, the government would see revenue in the form of $201 billion for the tax on the ‘Cadillac plans,’ $27 billion in ‘penalty payments’ from employers and persons without health insurance and '83 billion due to other effects on tax revenues and outlays.’ That reduces the cost to $518 billion.

Then, there’d be savings of $404 billion thanks to permanent reductions in the annual Medicare updates (excluding physicians), reductions in payments to Medicare Advantage Plans, decreases in the hospital disproportionate share payments and fee schedule recommendations ($22 billion) by the newly created and powerful ‘Medicare Commission.’

By the DMCB’s reckoning, that would leave a cost of $114 billion. ‘Other provisions’ would increase federal revenues by $196 billion taking the total revenues minus costs to that $82 (the DMCB thinks it’s a rounding error, really $81 billion).

The DMCB’s take:

Death and Taxes: the government giveth coverage subsidies of $829 billion, taketh direct taxes of $311 billion, reduces outlays to the tune of $404 billion and gets apparently gets some indirect benefits of $196 billion. This is not efficiency, but a transfer of wealth. It will be up the voters to decide if that is worth it.

One of Five Bills: the remaining four health reform bills (three in the House and one in the Senate) all increase the deficit. When these bills are reconciled and eventually passed in a single piece of legislation, there is a good chance that the reduction in the deficit will evaporate.

Cover: the CBO’s scoring of this bill is the ballast needed by the four other budget-busting bills currently before Congress. If one out of five reduce the deficit and increase the numbers of persons with health insurance, the inattentive will assume they all do. Looks like the probability of a health reform bill making it to Mr. Obama's desk has increased dramatically.

Uncertainty: the costs are known but the projected savings are far less assured thanks to the likelihood of continued Congressional meddling, the specter of continued underlying cost inflation, the actuarial uncertainty and Black Swans.

Squishiness: the non financial expert DMCB doesn’t understand how the Medicare Commission can make $22 billion appear if all is going to according to plan or just what is the the source of the $196 billion of additional revenues. It’s going unmentioned in all the sister blogs, but deserves better attention.

More Squishiness: The CBO says the scoring is preliminary because the Finance Committee has yet to generate the precise legislative language. That’s the stuff that most members of Congress don’t read. When will the CBO get a chance to read it and issue a more final report?

And Finally A Prediction: The title of the final bill voted on by Congress will include the name 'Kennedy.'

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