New Reconciliation Estimate Still Points to Long-Term Trouble

In light of recent developments, the Congressional Budget Office (CBO) has updated its estimate of the health care reconciliation bill (previously described here) that has now passed the House. The previous estimate showed that the bill would reduce ten-year deficits by $79 billion, or by $130 billion if economic effects were included, but it also estimated deficit increases beyond the first ten years (we estimated a $400 billion deficit increase in the second decade). The latest estimate shows a similar story: the bill reduces deficits by $78 billion, or $129 billion when economic effects are included, but we estimate that it would increase total deficits by around $250 billion in the second decade.

The latest score updates a few aspects of the bill. The first involves repeal of the auto-enrollment provisions, which requires employers with 200 or more employees to automatically enroll their employees in a health insurance plan unless the employee opts out. This provision, which saves $8 billion over ten years, was included in the Bipartisan Budget Act that just became law, so it is no longer available for this bill. The second involves repeal of the Independent Payment Advisory Board (IPAB), the panel charged with controlling Medicare spending growth. Lawmakers dropped this provision and its $7 billion ten-year cost prior to passage due to concerns that it would jeopardize the bill's ability to be passed via reconciliation.

These changes don't mean much for the ten-year score – dropping the savings by $1 billion – but they do more materially affect the long-term score since the cost of IPAB repeal grows fast. But although the longer-term score has improved somewhat, CBO still says that the bill "would increase on-budget deficits by more than $5 billion in one or more of the four consecutive 10-year periods beginning in 2026." This means that the bill would still violate the Byrd Rule, which prohibits a Senate reconciliation bill from increasing deficits beyond the ten-year window. We roughly estimate that the bill would increase total deficits by around $250 billion in the second decade (2026-2035). The main culprit is repeal of the Cadillac tax on high-cost health insurance plans, which has costs that grow rapidly over time. As we suggested previously, replacing the Cadillac tax with a limit on the exclusion for employer-provided health insurance would help limit the longer-term revenue loss.

Senate rules still dictate that lawmakers will have to make the bill more fiscally responsible over the long term, which would involve either dropping Cadillac tax repeal or coming up with other policies that will make a significant dent in deficits.