CBO Documents on Health “Reform”
In case you hadn’t seen it, CBO released two documents this weekend — one providing additional information about the House health care bill (H.R. 3200), and the second relating to proposals for a “MedPAC on steroids” as proposed by the Administration. The supplemental information about the score of the House legislation covers several key areas; important take-aways include the following:
- One of the reasons why CBO believes that employer coverage would remain relatively high is that the significant penalties on firms who do not offer coverage associated with the employer mandate mean that “a distinct minority of workers” would be better off if their employer placed them in the Exchange. A footnote on page 3 also implies that the lower non-compliance costs from the employer mandate in the Senate legislation could result in higher “crowd-out” figures resulting from employers dropping coverage — because the lower penalties would make it of greater benefit for the firm and its employees to do so.
- CBO assumed that 3 million individiuals would drop their current employer plan to join the Exchange, and that an additional 6 million workers would be in firms which decided to have their employees “buy in” to Exchange plans. This latter number is based on the hypothetical assumption that only firms with fewer than 50 employees would be able to access Exchange plans. However, the bill text itself notes that beginning in 2015, the Commissioner could open the Exchange up to all employers. If the Exchange were opened up to all employers, CBO said the number of workers thrown into the Exchange “would be undoubtedly greater than 6 million, but we have not estimated the magnitude.”
- CBO presumes a lower take-up in the government-run plan than Lewin estimates because CBO believes that the government-run plan premiums would only be about 10 percent lower than private coverage — as opposed to Lewin’s model, which presumes a price differential of 20-25 percent. However, CBO acknowledges that “because…[many] factors are uncertain, estimating enrollment in the public plan is especially difficult.”
- The letter admits that a pay-or-play mandate on business “would tend to reduce the hiring of workers at or near the minimum wage, because their wages might not be able to decline” by a sufficient amount to reflect costs of the new federal mandates/taxes. CBO also argued that “employers would be expected to pass the costs of [pay-or-play] fees on to workers in the form of lower wages.”
- In addition to the $239 billion deficit in the current 10-year budget window, H.R. 3200 “would probably generate substantial increases in federal budget deficits” in the years following 2019. This phenomenon occurs because health spending under the bill would rise by 8% in nominal terms, whereas offsetting tax increases would only rise by 5%.
On the MedPAC concept, CBO found that the legislation proposed by the White House would save only $2 billion (or approximately .125% of total spending in the bill) over the next ten years — and beyond 2019 “would generate larger but still modest savings.” CBO also estimated “the probability is high that no savings would be realized” over the first ten years for the MedPAC commission, largely because the savings provisions would not take full effect until 2016 — but also because “as proposed, the composition of the council could be weighted toward medical providers who might not be inclined to recommend cuts in payments to providers or significant changes to the delivery system.” However, the document did say that more savings could be generated if the legislation was expanded to include payment policies for Medicaid and other government health programs (as opposed to just Medicare), or if the council was given some type of hard savings target to meet (and/or there were statutory reductions in payments if the council did not meet its savings goals).
The CBO analysis prompted a rebuke by OMB Director Orszag, who publicly criticized his successor for the estimate in a blog post, saying that “CBO seems to have overstepped” by “providing a qualitative estimate of long-term effects without any analytical basis for doing so.”