July 31 - Yesterday, the House passed its final FY 2010 appropriations bill, but, in the process, disregarded requests from the Pentagon and Obama Administration to cut funding. Although the $636 billion bill does take funding from the F-22 program, Congress refused to incorporate similar cuts in funding for five VH-71 presidential helicopters, and a search for a substitute engine for the F-35. Combined, the two programs will cost the government just under $1 billion. 

Meanwhile, the Senate began to take up its fourth appropriations bill of the year, Agriculture, a week before the start of the summer recess. In addition, the Senate Appropriations Committee approved the $122 billion Transportation-HUD bill unanimously, and voted 29-1 to send the $730 billion Labor-HHS bill to the Senate floor for a vote.

July 29 - Both the House and Senate announced today that influential legislators had helped negotiate compromises aimed at pushing health care reform through congress. Arkansan Mike Ross, a leader of the Blue Dog Coalition, announced that four Blue Dogs on the House Energy and Commerce Committee had struck a tentative deal for a House health care bill costing under $1 trillion over the next ten years. Although no vote is scheduled to take place on any bill until the House reconvenes from its August recess in September, the new compromise makes passage of health care reform one step closer. The bill would create a government run health insurance company, and put limits on employer penalties, in addition to saving the House over $100 billion.

Senate Finance Committee Chairman Max Baucus also outlined a Senate proposal for health care reform. Baucus claimed today that the new $900 billion bill would receive bipartisan support from the Finance Committee and would actually save the federal government money in the tenth year of the legislation. While no specifics of the draft bill were given, it's doubtful that the Senate will incorporate the government insurance program into its bill. Baucus did say however that the new bill would cover 95% of Americans by 2015.

July 27 - This weekend, the Congressional Budget Office (CBO) released two very significant reports, Additional Information Regarding the Effects of Specifications in the America's Affordable Health Choices Act Pertaining to Health Insurance Coverage, and "Approaches for Giving the President Broad Authority to Change Medicare.

The first report followed up on CBO's Preliminary Analysis of the America's Affordable Health Choices Act by offering more details on the bill's impact in a number of areas. While there were uncertainties in many categories, among their major expectations were:

• On Coverage: The number of individuals insured through their employers would not change much, on net. However, Medicaid and SCHIP would take on as many as 11 million new enrollees, and the new health exchanges as many as 30 million (although it is not clear how many would enroll in the public plan). On net, the CBO projects the number of uninsured to drop from a high of 52 million in 2012 to 17 million in 2019 (as opposed to 54 million projected under current law).
• On Private Health Care Costs: The effect of the legislation on private-sector health insurance premiums is uncertain, but likely modest over the short term. The effects of risk pooling, cost-shifting, and payment method reforms can all work to increase as well as decrease private premiums, with the net impact still unknown.
• On the Labor Market: The legislation would likely reduce employment somewhat, for three main reasons: the tax/mandate on employers might pressure employers to eliminate workers (especially low wage ones) for whom they would incur increased expenses ;the means-tested nature of the subsidies will create a disincentive on higher earnings, especially through more hours of work, and finally, the increased availability of non-employer provided health insurance will allow some individuals to retire earlier or remain unemployed for longer.
• On Long-Term Costs: Although CBO does not formally estimate costs beyond the 10-year budget window, they do look at the relative growth of costs and offsets. Subsidy costs, they predict, would tend to grow in line with health care costs - well faster than the economy. Offsets on the tax side would grow substantially slower; and although a number of the spending cuts would also grow with health care costs, they are too small in size to finance growing costs. Overall, the CBO concludes. "the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window."

 The second report analyzed the potential impact of a plan to create an Independent Medicare Advisory Council (IMAC) to make recommendation to reform Medicare payments, which the President could then enact unless overridden by Congress.

 In our own analysis of the proposal, CRFB came out strongly in favor of such a policy, arguing that "Proposals to empower an outside body with making recommendations for cost savings could help reduce political pressures surrounding some of the difficult and controversial health care and Medicare reforms ahead. This, in turn, could lead to both larger and more rational cost-reducing policies - policies which are absolutely necessary to ensure the country's long-term fiscal sustainability."

The CBO has estimated that the proposal, if added to the American's Affordable Health Choices Act, would yield savings of $2 billion between 2016 and 2019 (spending reductions could first go into effect in 2016). The small size of this number in part reflects the high level of uncertainty regarding what the council might recommend (including the possibility no savings will be realized) and, in part, reflects the reality that the America's Affordable Health Choices Act already contains considerable Medicare payment reductions, making further reductions less likely.

CBO suggests that, "looking beyond the 10-year budget window... this proposal would generate larger but still modest savings on the same probabilistic basis." Over the weekend, OMB Director Peter Orszag  argued that "the point of the proposal... was never to generate savings over the next decade.... Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term. In other words... the IMAC is a game changer not a scoreable offset."

CBO also offered several options which could increase the amount of savings the IMAC proposal could produce. Among them included:

• Set cost reductions goals for the council.
  
  • Create a fall-back mechanism (such as across-the-board payment cuts) if goals are not met
• Expand the council's authority to "recommend broad changes in coverage, benefit design, and payment and delivery systems," to address other government health care programs, and/or to address the broader health care system.
• Provide the council with resources to "develop and test ideas for cost reduction."

The CBO concluded that:

"If the legislation were to provide IMAC with broad authority, establish ambitious but feasible savings targets, and create a clear fall-back mechanism for instituting across-the-board reductions in net Medicare outlays, CBO believes the council would identify steps that could eventually achieve annual savings equal to several percent of Medicare spending."

July 24 - Read Fred Hiatt's excellent interview with President Obama on health care reform and the need to deal with the fiscal crisis.

Important points: 

• President Obama will not accept health care reform that does not slow the growth of health care costs (Doing so would be a terrible step in the wrong direction and would make dealing with the country's fiscal challenges much more difficult)
• He is open to certain measures to cap the employer-provided health care exclusion (He should stop the back and forth on this policy and go further than the gradual cap he mentions - this is a very good health care, budget, and tax policy and should be part of reform)
• He pushes the MedPAC proposal (CRFB supports this)
• He indicates Social Security reform is likely to follow health care reform (They should get started on this now)
• He indicates he supports using a commission to come up with recommendations to deal with the structural deficit
• He warns of the risks that demand for Treasuries will be reduced if we don't develop a fiscal plan (As CRFB has called for)
• Interesting that the President chose to give this important interview with Fred Hiatt, who is quite forceful on the issue of fiscal responsibility at the Washington Post. That is a good sign.

July 21 - Today the Committee for a Responsible Federal Budget released "Health Care and the Federal Budget," which looks at the state of the U.S. health care system from a fiscal perspective. With national health spending totaling around $2.5 trillion in 2009,  and projected to grow to $4.4 trillion by 2018, there is obvious cause for concern that health care spending is out of control. This is especially true given that over a third of health care spending comes from the federal government (outside of the tax system). Given the current fiscal gap we face, these growing costs are driving our country ever closer to fiscal disaster.

The truth, the report points out, is that most Americans "have no idea how much the current system costs them. Until they do, they have little reason to support the types of reforms required to make the nation's health care more affordable, and to keep it from consuming increasingly greater shares of our economic resources." And unless key changes are made in health care delivery and payment systems, costs will continue to rise rapidly.

The report comes to the conclusion that while deficit-neutral health reform is a first step, it is not enough given the current fiscal climate. Policy makers must also address long-term fiscal gaps. The report says:

"Before the federal budget can take on new responsibilities, the public - and their elected officials - must be willing to acknowledge the obligation to provide the taxes required to pay for health care reform. To do otherwise would further imperil future standards of living by driving the federal government deeper in debt."