Under the Senate health care reform bill the average American will pay about the same for insurance as he or she pays now, the CBO and the Joint Committee on Taxation reported yesterday. Supporters of health care reform are hopeful that these findings will reassure moderate Senators who are concerned about cost increases.

Premiums for workers at small businesses, 13 percent of the insurance market, would stay about the same as they are now. Premiums for workers at large companies, 70 percent of the market, could decrease slightly.

Subsidies will reduce premium costs for most individuals who buy their own insurance. Roughly 57 percent of the private insurance market would qualify for federal subsidies. But for those purchasing insurance who do not qualify for subsidies, premiums would increase by about 10 to 13 percent. Yet these higher premiums would also buy more coverage, which partially explains their higher price tag.

As The Wall Street Journal notes, Democrats cite this study as evidence that the bill controls cost. Republicans, however, point out that even though the bill would reduce premiums, over time the cost of health care would still continue to rise.

Update: An editorial in today's Washington Post discusses the possibility of increasing the gasoline tax to help pay for the troop increase. The editorial mentions that gas taxes enacted in 1940 and 1951 helped to pay for World War II and the Korean War, respectively. The article points out that the federal gas tax has not been raised since 1983, and that a 40-cent increase over five years could help "cover most or all of the war's costs and still leave gasoline prices well short of where they were in the summer of 2008."

Ahead of President Obama’s expected proposal to increase the number of troops in Afghanistan, House Appropriations Committee chair David Obey has joined several other Democrats in proposing a war surtax.

Obey’s motives probably have a lot more to do with his opposition to a troop surge than his fear of borrowing. But that doesn’t mean a proposal to pay for the costs shouldn’t merit consideration. If we are going to engage in more spending, regardless of what kind, it should be paid for. The current debt picture should make those trade-offs painfully clear.

President Obama is expected to propose a 20,000 to 40,000 troop increase. The White House estimates each additional troop would cost roughly $1 million per year (although the Pentagon estimates closer to $500,000), and that the total cost of a troop increase would be between $20 billion and $35 billion per year. This is on top of the $55 billion a year we are already spending on Afghanistan (and related activities), and the addition $100 billion we are spending in Iraq.

The Share the Sacrifice Act of 2010 would impose a three-bracket surtax, set at “applicable tax rates” necessary to fully-finance expenditures related to the war in Afghanistan. Certain taxpayers – in particular members of the military and their families – would be exempt.

Any new initiative the federal government takes, be it an expansion of health care, a tax cut, or a military operation should be paid for.

It would be reasonable for these offsets to occur either as a tax increase, or as a spending cut; and given the amount of waste in the defense budget, there is plenty of room for spending cuts.

But at the end of the day, we can’t pretend that certain measures – even important measures – are free.

Congressman Obey had it right when he declared that “if this war is important enough to engage in the long term, it's important enough to pay for.”

The New England Journal of Medicine, last week, had an article by four RAND researchers on Controlling U.S. Health Care Spending. Using Massachusetts as a model to measure national effects, the authors estimated the potential range of impact for eight items. Of them, bundling payments appears to have the most promise, with savings potential of between 0.1% and 5.4%. They find that many items, such as health IT, could either increase or decrease national health spending (the range for Health IT is between a 1.5% reduction and a 0.8% increase).

Thanks to Donald Marron and Bruce Bartlett for pointing this out.

Worry about the government’s investment in AIG has prompted some federal officials to call for easing the restrictions on pay at AIG for 2010, the Wall Street Journal reported.

Last month, the U.S. pay czar, Kenneth Feinberg, announced he cut 2009 compensation, including salaries and stock, for the top 13 AIG employees by 57%. In recent weeks, officials from the New York Fed and the Treasury Department have urged Mr. Feinberg, to avoid making 2010 pay similarly restrictive for some top AIG executives and employees, according to people familiar with the discussions.

Fed and Treasury officials told Mr. Feinberg that tough restrictions could ultimately jeopardize the government's ability to recoup its roughly $90 billion in loans because key employees would leave.

Despite this recent pressure to lower restrictions on pay, some still question whether the government is acting in the taxpayers’ interest.

A report by the special inspector general overseeing the Troubled Asset Relief Program said the New York Fed "refused to use its considerable leverage" to compel AIG's trading partners, including Goldman Sachs Group Inc., to accept lower prices for more than $60 billion in complex securities they insured with AIG.

The U.S. government currently owns 80 percent of AIG. Track all of the ways in which the federal government has provided support for AIG at Stimulus.org.

Public concern over the United States’ ballooning deficit and debt seems to be growing. Both the cover of this week’s Economist and the lead story on The New York Times website tackle U.S. borrowing. As of this afternoon, The Times story was one of the site’s most emailed.

As The Times explains, the timing of increased government borrowing poses additional challenges:

The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.

The Economist makes the same argument CRFB President Maya MacGuineas made when testifying before Congress a couple weeks ago. Both argue the U.S. should announce a credible plan to reduce the deficit.

Far from requiring immediate spending cuts or tax increases, a credible plan would reassure markets and allow an orderly exit from fiscal stimulus.

To reduce the debt, The Economist outlines a number of spending cuts and tax increases.

Raising the retirement age for Social Security and Medicare would save money while encouraging Americans to work longer, thereby expanding economic potential. Medicaid could be converted to block grants, compelling states to assume more of the burden of cost control. Other spending should also be vigorously squeezed, to stop federal funds being wasted on highways of dubious value or trade-distorting farm subsidies.

Also a sign that deficit reduction is gaining support, reports indicate that the White House plans to focus on the debt in the state of the union address.

And, another most-read story over at The Wall Street Journal is former CBO director and CRFB board member Douglas Holtz-Eakin’s editorial on “The Coming Deficit Disaster.” He argues that now is the time to deal with the deficit.

On Friday evening, the FDIC reported that it has taken over an additional bank (Commerce Bank of Southwest Florida) for a cost to the FDIC of around $24 million. This brings the total number of failed banks in 2009 to 124. Total deposits of all failed banks now equal $115.5 billion for 2009 and over $349 billion since the beginning of 2008, all at an estimated cost to the FDIC of just under $54 billion. Visit Stimulus.org for more details and a full list of FDIC bank closings.

Yesterday, the Senate voted 60-39 to begin debating their health care reform bill (all 60 votes were needed for debate to continue).  CRFB has put together a chart comparing the House and Senate bills here. We also recommend you check out the following CBO and JCT reports on the Senate bill released in the last few days:

• CBO Analysis of Patient Protection and Affordable Care Act
• JCT Revenue Estimates for Patient Protection And Affordable Care Act
• CBO: Subsidies and payments at different income levels
• CBO: Distribution of individual mandate penalties
• CBO: Effect on the Hospital Insurance (HI) trust fund
• CBO: Effect on projected enrollment in Medicare Advantage plans and subsidies for extra benefits not covered by Medicare

And check our our recent blogs on the bill:

• The True Costs of Health Reform
• Senate Introduces New Health Care Bill
• Updated Health Care Charts
• Taxing Health Care Decisions

UPDATE: CBO has modified its cost estimate for the House bill to save $138 billion over ten years, instead of $109 billion. This change is due to the fact that the CLASS Act (described below) would end up raising $30 billion more than originally projected in the first decade, ironically because of broader than originally believed coverage.

Yesterday, the House passed legislation permanently updating physician payments on a deficit-financed basis (against our urging). Although passed separately from their health care bill, it is worth looking comprehensively at the cost of health care reform, as passed by the House of Representatives so far.

As we show in our newly updated health care comparison chart, the "Affordable Health Care for America Act," which passed the House recently, it would reduce the ten year deficit by around $109 $138 billion.

That number, though, includes $72 $102 billion worth of savings from the CLASS Act* -- a long-term care insurance plan which raises early revenues due to a five year vesting period, but spends all of that money down in the out years. If the effects of the CLASS Act are excluded, as most experts think they should be, the bill will reduce the deficit by $37 billion over ten years. House leaders deserve credit for rightfully describing the bill this way (unlike the Senate leadership, which includes the savings from the CLASS Act in their deficit reduction claims).

But wait, there is more. The House, yesterday, passed a bill which would eliminate the so-called "sustainable growth rate" (SGR) for Medicare physician payments and replace it with a new formula. Under the existing formula, physicians are scheduled to receive a 21 percent pay cut next year, and further cuts thereafter. On its own, reforming the SGR would cost $210 billion over the next decade. CBO has estimated that, if enacted with the comprehensive reform bill, fixing the SGR would cost closer to $198 billion.

$109 $138 billion - $72 $102 billion - $198 billion = -$161 billion (after rounding). So instead of reducing the deficit by $109 $138 billion, it will be as if the House is increasing the deficit by $161 billion.

And the long-term picture looks even worse. Under the official deficit measure of the Affordable Health Care for America Act, the CBO estimates a $9 $12 billion deficit reduction in 2019; and because savings will grow slightly faster than costs, deficit reduction between 0% and 0.25% of GDP in the second decade. Using our measure, the 2019 deficit would be increased by $30 billion. And the costs of the SGR fix would also grow quickly, wiping out future savings. As you can see in the graph above, the deficit impact between 2018 and 2019 is roughly flat (and negative). CBO estimates that if the SGR fix were combined with the other bill, deficits would increase by between 0% and .25% in the second decade.

*A couple billion of that savings would come from lower Medicaid costs. This is a fair and legitimate offset, and should technically be included in the final deficit number. Due to technical limitations, however, we have had to group these savings with the rest of the CLASS Act.

 

So what about the Senate? Like the House, their bill -- which technically would reduce the deficit by $130 billion -- includes offsets from the CLASS Act (which they count!). Once that is excluded, the actual deficit reduction would be more like $57 billion.

On the SGR fix, the Senate hasn't passed anything yet. In fact, they rejected a previous deficit-financed fix, and their reform legislation includes a temporary ($11 billion) patch of the SGR, which they pay for.

But if the Senate did pass a permanent fix the SGR similar to the House's, it would cost around $185 billion. That would mean that if the Senate deficit-finances the remainder of an SGR fix, and they pass health reform legislation in its current form, they'd be adding around $130 billion to the deficit, rather than reducing the deficit by that amount. It's important to note, though, that the Senate has not passed an SGR fix on a deficit-financed basis.

In a similar type of analysis, Senate Budget Committee Republicans have attempted to estimate the "true cost of the Senate health care bill." Their concern is chiefly in spending rather than deficit impact, and focuses strongly on timing aspects -- aiming to measure the bill's costs once it is fully phased in.

They find that if measuring all the costs of the bill for the first ten years after the major provisions begin (2014 through 2023), it would cost around $2.5 trillion. This is significantly higher than the $848 billion normally advertised as the cost of the coverage between 2010 and 2019, the roughly $940 billion we calculate as the gross cost, or even the $1.24 trillion they estimate for 2010 to 2019. It is important to note that, in calculating gross costs, this analysis pulls apart a number of line items which are generally netted out -- for example premiums and spending for the "public plan" are counted separately.

In that same period, they calculate offsets of around $2.7 trillion. See their estimates here:

UPDATE: CLICK HERE TO SEE OUR LATEST CHARTS AND GRAPHS COMPARING THE DECEMBER 19TH MANAGER'S AMENDMENT TO THE HOUSE BILL.

Yesterday Majority Leader Harry Reid introduced the Patient Protection and Affordable Care Act. The bill reduces the deficit by $130 billion over ten years, and spends $848 billion in coverage expansion.

We have broken down the costs and savings of the bill, compared to other versions, below.

The bill spends a bit more than the Senate Finance Committee bill last month, but significantly less than the planned costs of the Senate HELP Committee bill. On tax policy, the new bill reduces the excise tax on high cost plans, relative to the Finance bill, so that it raises around $50 billion less than it did in the Finance Committee version. This revenue loss is replaced with an increase on the Medicare payroll tax for high earners.

See our updated chart comparing the HELP Committee bill, the Senate Finance Committee bill, and the Patient Protection and Affordable Care Act below. Click here for our comparison of the new Senate bill with the most recent House bill.

Numbers in billions, with positive numbers representing a reduction in the deficit
Sources: Congressional Budget Office, Joint Committee on Taxation, and Authors' Calculations
X = Not included within bill due to jurisdictional issues
*The HELP Committee bill includes no Medicaid expansion, due to jurisdictional issues. However, they have expressed their intent to do so, and CBO has provided a very rough estimate as to how much that would cost.
+The CLASS Act makes available government-sponsored long-term care insurance. Because this insurance would have a "vesting period," the provision appears to raise considerable amounts of revenue over the next decade. However, these revenues must ultimately be used to cover the program's costs, and therefore do nt belong in the bill as an offset.