“Are you so arrogant that you think you know what’s best for the American people? Are you so ignorant that you are oblivious to the wishes of the American people? And are you so incompetent that you are going to ignore the Constitution of the United States, use tricks, deceptions, bald faced lies to try to ram down the throat of the American people something that they do not want and is going to be absolutely worse for their healthcare?”

Rep. Paul Broun, R-Ga


Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away

God only knows
God makes his plan
The information’s unavailable
To the mortal man
We work our jobs
Collect our pay
Believe we’re gliding down the highway
When in fact we’re slip slidin’ away

Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away


March 18, 2010

Honorable Nancy Pelosi
Speaker
U.S. House of Representatives
Washington, DC 20515

Dear Madam Speaker:

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have completed a preliminary estimate of the direct spending and revenue effects of an amendment in the nature of a substitute to H.R. 4872, the Reconciliation Act of 2010; that amendment (hereafter called “the reconciliation proposal”) was made public on March 18, 2010. The estimate is presented in three ways:

  • An estimate of the budgetary effects of the reconciliation proposal, in combination with the effects of H.R. 3590, the Patient Protection and Affordable Care Act (PPACA), as passed by the Senate;
  • An estimate of the incremental effects of the reconciliation proposal, over and above the effects of enacting H.R. 3590 by itself;
  • An estimate of the budgetary impact of the reconciliation proposal under the assumption that H.R. 3590 is not enacted (that is, an estimate of the bill’s impact relative to current law as of today).

Although CBO completed a preliminary review of legislative language prior to its release, the agency has not thoroughly examined the reconciliation proposal to verify its consistency with the previous draft. This estimate is therefore preliminary, pending a review of the language of the reconciliation proposal, as well as further review and refinement of the budgetary projections.

The reconciliation proposal includes provisions related to health care and revenues, many of which would amend H.R. 3590. It also includes amendments to the Higher Education Act of 1965, which authorizes most federal programs involving postsecondary education.

CBO and JCT estimate that enacting both pieces of legislation—H.R. 3590 and the reconciliation proposal— would produce a net reduction in federal deficits of $138 billion over the 2010–2019 period as result of changes in direct spending and revenue (see the top panel of Table 1 and subtitle A of title II on Table 5).

Approximately $85 billion of that reduction would be on-budget; other effects related to Social Security revenues and spending as well as spending by the U.S. Postal Service are classified as off-budget. CBO has not completed an estimate of the potential impact of the legislation on discretionary spending, which would be subject to future appropriation action.

CBO and JCT previously estimated that enacting H.R. 3590 by itself would yield a net reduction in federal deficits of $118 billion over the 2010-2019 period, of which about $65 billion would be on-budget. The incremental effect of enacting the reconciliation proposal—assuming that H.R. 3590 had already been enacted would be the difference between the estimate of the combined effect and the previous estimate for the Senate passed bill, H.R. 3590.

That incremental effect is an estimated net reduction in federal deficits of $20 billion over the 2010-2019 period over and above the savings from enacting H.R. 3590 by itself; almost all of that reduction would be on-budget (see the bottom panel of Table 1 and subtitle A of title II on Table 5).

The budgetary impact of the reconciliation proposal if H.R. 3590 is not also enacted would be different. Although estimates on that basis have been completed for most of the provisions of the reconciliation proposal, CBO does not yet have such an estimate for all of its provisions. By CBO’s estimate, the provisions that have been analyzed so far would reduce deficits by $82 billion over the 2010-2019 period (see Table 6).

Details on the budgetary effects of the health and revenue provisions of the reconciliation proposal, along with its effects combined with H.R. 3590, are provided in Tables 1, 2, and 3:

  • Table 1 summarizes the effect on the deficit of the health and revenue provisions of the reconciliation proposal combined with H.R. 3590; it also shows the net incremental effect of those provisions of the reconciliation proposal over and above the impact of enacting H.R. 3590 by itself.
  • For the two pieces of legislation combined, Table 2 provides estimates of the changes in the number of nonelderly people in the United States who would have health insurance and presents the primary budgetary effects of the provisions related to health insurance coverage.
  • For the two pieces of legislation combined, Table 3 displays detailed estimates of the costs or savings from the health provisions that are not related to health insurance coverage (primarily involving the Medicare program) and from certain of the revenue provisions that are not related to insurance coverage. The table does not include the effect on revenues of title IX, a set of tax provisions whose impact is reported separately by JCT.

Tables 4 and 5 show the incremental budgetary effects of the reconciliation proposal (except for title IX), over and above the effects of enacting H.R. 3590 by itself:

  • Table 4 presents the incremental effects of the health and revenue provisions of the reconciliation proposal—that is, the difference between the effects of the two pieces of legislation combined and the effects of H.R. 3590 by itself (as shown in CBO’s March 11 letter to Senator Reid).
  • Table 5 summarizes the incremental effects of the health, revenue, and education provisions of the reconciliation proposal, also assuming that H.R. 3590 has been enacted. (The impact of the health and revenue provisions is shown in more detail in Table 4.)

Table 6 shows the estimated effect of enacting the reconciliation proposal relative to current law—that is, assuming that H.R. 3590 is not enacted. That table does not include some effects that have not yet been estimated.

Effects of the Legislation Beyond the First 10 Years

Although CBO does not generally provide cost estimates beyond the 10-year budget projection period, certain Congressional rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO’s analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems.

Therefore, CBO has developed a rough outlook for the decade following the 2010-2019 period by grouping the elements of the legislation into broad categories and (together with the staff of the Joint Committee on Taxation) assessing the rate at which the budgetary impact of each of those broad categories is likely to increase over time.

Our analysis indicates that H.R. 3590, as passed by the Senate, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of gross domestic product (GDP). The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.

Using that same analytic approach, the combined effect of enacting H.R. 3590 and the reconciliation bill would also be to reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range around one-half percent of GDP. The incremental effect of enacting the reconciliation bill (over and above the effect of enacting H.R. 3590 by itself) would thus be to further reduce federal budget deficits in that decade, with a total effect that is in a broad range between zero and one-quarter percent of GDP.

Relative to H.R. 3590, the reconciliation proposal would make a number of changes that would affect its longer-term impact on the budget. In particular, it would increase the subsidies offered in the new insurance exchanges and would reduce the impact of an excise tax on health insurance plans with premiums above certain thresholds.

An important component of the longer-term analysis is that, beginning in 2019, the reconciliation proposal would change the annual indexing provisions so that the premium subsidies offered through the exchanges would grow more slowly; over time, the spending on exchange subsidies would therefore fall back toward the level under H.R. 3590 by itself.

Another key component of the longer-term analysis is that, beginning in 2020, the reconciliation proposal would index the thresholds for the high-premium excise tax to the rate of general inflation rather than to inflation plus one percentage point.

CBO has not extrapolated estimates further into the future because the uncertainties surrounding them are magnified even more. However, in view of the projected net savings during the decade following the 10-year budget window, CBO anticipates that the reconciliation proposal would probably continue to reduce budget deficits relative to those under current law in subsequent decades, assuming that all of its provisions would continue to be fully implemented.

Congressional rules governing the consideration of reconciliation bills also require an assessment of their budgetary impact separately by title. The effects of the reconciliation proposal over the 2010–2019 period are shown in Table 5, assuming that H.R.3590 is also enacted). CBO’s analysis of the longer-term effects, by title, is as follows:

  • Most of the changes to H.R. 3590 that have significant budgetary effects would be made by title I of the reconciliation proposal, so the conclusions about the longer term impact for the proposal as a whole—that it would reduce deficits, relative to H.R. 3590—also apply to that title.
  • The changes regarding health care contained in title II have a smaller budgetary impact than those in title I, and would by themselves increase budget deficits somewhat. That title also contains the proposal’s education provisions, which CBO estimates would reduce future deficits. In CBO’s estimation, the savings generated by the education provisions would continue to outweigh the costs related to health care stemming from title II, so that the title as a whole would continue to reduce the budget deficit in future years.

CBO has not yet completed an assessment of the impact for the longer term of enacting the reconciliation proposal by itself.

I hope this analysis is helpful for the Congress’s deliberations. If you have any questions, please contact me or CBO staff. The primary staff contacts for this analysis are Philip Ellis and Holly Harvey.

Sincerely,

Douglas W. Elmendorf

Director



Full CBO Report (PDF)(25 Pages)


H.R. 4872 – Reconciliation Act of 2010


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