Congressional Budget Office
Director’s Blog

Earlier today, I posted a blog about the cost estimate for the health care legislation pending in the House. I explained how the repeal of certain tax rules in H.R. 3962, the health care bill, would now generate less revenue because the rules would only be in effect for two years during the 2010-2019 period as a result of the unemployment legislation that was signed into law today. The original estimate for the impact of that repeal under H.R. 3962, about $26 billion over the 10-year period, will now be reduced to about $6 billion. CBO just issued an updated estimate for the health care bill, reflecting the fact that the additional revenues that would result from its enactment will be smaller than those shown in last night’s estimate.  Reflecting this change, CBO and the staff of Joint Committee of Taxation now estimate that, on balance, the direct spending and revenue effects of enacting H.R. 3962, incorporating the manager’s amendment, would yield a net reduction in federal budget deficits of $109 billion (rather than $129 billion) over the 2010-2019 period.

The Treasury recently reported that the federal government recorded a total budget deficit of $1.4 trillion in fiscal year 2009, about $960 billion more than the deficit incurred in 2008. CBO notes, in its latest Monthly Budget Review, that the federal deficit rose as a share of the nation’s gross domestic product (GDP) from 3.1 percent in 2008 to 9.9 percent in 2009—the highest deficit as a share of GDP since 1945.

As shown in the figure below, federal spending and receipts diverged dramatically in 2009, reflecting the weakening economy and the federal response. The increase in the deficit of almost 7 percentage points of GDP from 2008 reflected a sharp drop in revenues and a substantial increase in spending. Receipts in 2009 tumbled to $2,105 billion, a decrease of $419 billion, or 17 percent, from 2008. That year-over-year decline follows a small drop in revenues for fiscal year 2008 and is the largest annual percentage decline in revenues in more than seven decades. Total revenues fell from 17.5 percent of GDP in 2008 to 14.8 percent of GDP in 2009; individual income tax receipts showed the largest decrease—from 7.9 percent to 6.4 percent of GDP.

Receipts and Outlays as a Percentage of GDP

Outlays rose by 18 percent in 2009, the fastest rate of growth since 1975. Three initiatives—the Troubled Asset Relief Program (TARP), net cash infusions for Fannie Mae and Freddie Mac, and ARRA—drove that growth, adding $353 billion to outlays in 2009, or 2.5 percent of GDP. Specifically, stimulus spending from ARRA totaled $108 billion in 2009—$32 billion for Medicaid, $22 billion for unemployment benefits, and $54 billion for other programs and activities. All other federal spending accounted for 22.2 percent of GDP in 2009, up from 20.6 percent in 2008.

Payments for unemployment benefits in 2009 were more than 2½ times the amount paid in 2008, an increase of $73 billion. That jump was caused by substantially greater unemployment and increased benefits. Conversely, spending for net interest on the public debt decreased by $58 billion (from 1.8 percent of GDP in 2008 to 1.4 percent in 2009) because of lower short-term interest rates and lower costs for inflation-indexed securities.

Last night CBO and the staff of the Joint Committee on Taxation (JCT) released an estimate of the direct spending and revenue effects of H.R. 3962, the Affordable Health Care for America Act, as introduced on October 29, 2009, incorporating the manager’s amendment proposed by Representative John Dingell on November 3, 2009.

Among other things, the legislation would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance “exchanges” through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; establish a public plan that would be administered by the Secretary of Health and Human Services; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); impose an income tax surcharge on high-income individuals; and make various other changes to the federal tax code, Medicaid, Medicare, and other programs.

CBO and the staff of JCT estimate that, on balance, the direct spending and revenue effects of enacting H.R. 3962, incorporating the manager’s amendment, would yield a net reduction in federal budget deficits of $129 billion over the 2010-2019 period. (CBO has not completed a comprehensive estimate of the legislation’s potential impact on spending that is subject to future appropriation action.) In the decade after 2019, the bill would probably result in slight reductions in federal budget deficits.

On October 29, 2009, CBO transmitted a preliminary analysis of H.R. 3962 as introduced.  (As discussed in that analysis, CBO and JCT estimated that enacting H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the 2010–2019 period.) This estimate differs from that preliminary analysis for several reasons:

• First, this analysis incorporates the effects on spending and revenues of the manager’s amendment. Those changes are relatively small with the exception of the addition of a tax provision regarding credits for producers of biofuel, which would increase net revenues by about $24 billion over the 2010-2019 period, according to JCT.

• Second, the updated analysis reflects Medicare’s payment rates for calendar year 2010 and other changes announced in final rules that were posted on the Federal Register’s Web site on October 30, 2009. Those final rules involve home health services, hospital outpatient services, the physician fee schedule, and other Medicare Part B services.

• Finally, this analysis incorporates several technical revisions that had a small impact on the estimated budgetary effects of the legislation.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 36 million, leaving about 18 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the bill, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 96 percent.

Those estimates for H.R. 3962 include revenue increases from a tax provision similar to one that was included in a bill that the Congress cleared yesterday. H.R. 3962 would repeal certain tax rules, scheduled to take effect in 2011, that would allow corporations with worldwide activities to reduce their U.S. income taxes by allocating more of their interest expenses to domestic profits. Yesterday, the Congress cleared for the President’s signature legislation that extends unemployment benefits, which also included a provision that will delay the implementation of those worldwide interest allocation rules until 2018. So, the repeal of those rules in H.R. 3962, the health care bill, would now generate less revenue because the rules would only be in effect for two years during the 2010-2019 period. Consequently, the original estimate for the impact of that repeal under H.R. 3962, about $26 billion over the 10-year period, will now be reduced to about $6 billion as a result of the cleared unemployment legislation. Later today, CBO will issue an updated estimate for the health care bill, reflecting the fact that the additional revenues that would result from its enactment will be smaller than those shown in last night’s estimate.

One question receiving much attention in the discussion of the pending health care legislation is:  How would it affect unauthorized immigrants?  In a recent letter (dated October 29), we noted that unauthorized immigrants would constitute “about one-third” of the 18 million nonelderly residents who we estimate would remain uninsured under H.R. 3962, the bill currently being considered in the House. In our preliminary analysis of an earlier version of the legislation, H.R. 3200 as introduced, we said that “nearly half” of the 17 million residents who we estimated would remain uninsured would be unauthorized immigrants.

The use of the terms “about one-third” and “nearly half” was meant to convey the uncertainty and imprecision surrounding our estimates of the characteristics of the remaining uninsured population. Because of that uncertainty and imprecision, we cannot provide a specific figure for coverage of unauthorized immigrants under any of the proposals. Despite the difference in wording, we would not expect any significant differences between the two bills in the number of uninsured who are unauthorized immigrants, because the relevant features of the two proposals are similar. (Our analysis of H.R. 3200 was preliminary and based on specifications rather than a reading of the legislative language.) Further, we have not changed our methodology for estimating the relevant factors in the intervening period.

This evening, CBO released a preliminary analysis of a substitute amendment to H.R. 3962, the Affordable Health Care for America Act, proposed by Representative John Boehner, the Republican Leader in the House of Representatives. CBO and the staff of the Joint Committee on Taxation (JCT) estimate that the amendment would reduce federal deficits by $68 billion over the 2010-2019 period; it would also slightly reduce federal budget deficits in the following decade, relative to those projected under current law, with a total effect during that decade that is in a broad range between zero and one-quarter percent of gross domestic product.

That amendment contains several provisions that are intended to increase rates of insurance coverage by reducing its costs or subsidizing its purchase, including:

·  Regulatory reforms in the small group and non-group markets, including establishing association health plans (insurance coverage that is offered to members of an association) and individual membership associations, and allowing states to establish interstate compacts with a unified regulatory structure;

·  A State Innovations grant program to provide federal payments to states that achieve specified reductions in the number of uninsured individuals or in the premiums for small group or individually purchased policies;

·  Federal funding for states to use for high-risk pools in the individual insurance market and reinsurance programs in the small group market; and

·  Changes to health savings accounts (HSAs) to allow funds in such accounts to be used to pay premiums under certain circumstances, to make net contributions to HSAs eligible for the saver’s tax credit, and to provide a 60-day grace period for medical expenses incurred prior to the establishment of an HSA.

CBO and JCT estimate that those provisions would increase federal budget deficits by about $8 billion over the 2010-2019 period, reducing the number of nonelderly people without health insurance by about 3 million in 2019 and leaving about 52 million nonelderly residents uninsured. The share of legal nonelderly residents with insurance coverage in 2019—83 percent—would be roughly in line with the current share.

Other provisions of the amendment would alter federal spending and revenues in significant ways. The key provisions include:

·  Limits on costs related to medical malpractice (“tort reform”), including capping noneconomic and punitive damages and making changes in the allocation of liability;

·  Requirements that the Secretary of Health and Human Services adopt and regularly update standards for electronic administrative transactions that enable electronic funds transfers, claims management processes, and verification of eligibility, among other administrative tasks;

·  Establishment of an abbreviated approval pathway for follow-on biologics (biological products that are highly similar to or interchangeable with their brand-name counterparts); and

·  An increase in funding for HHS investigations into fraud and abuses.

CBO anticipates that the combination of provisions in the amendment would reduce average private health insurance premiums per enrollee in the United States, relative to what they would be under current law-by 7 percent to 10 percent in the small group market, by 5 percent to 8 percent for individually purchased insurance, and by zero to 3 percent in the large group market.  Those are averages, however, and they are subject to a great deal of uncertainty; some individuals and families in each market would see different results.

In 2005, the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), experienced an unprecedented volume of claims resulting from hurricanes Katrina, Rita, and Wilma. Total payments on those claims were greater than the total for all of the program’s previous years combined and led the NFIP to borrow about $17 billion from the Treasury. The 2005 losses highlighted a number of factual and policy questions—discussed in a CBO paper released today—about the NFIP’s financial health, including the actuarial soundness of the premium rates charged on policies that are not explicitly subsidized and the cost of paying claims for properties that have suffered multiple flood losses.

As of July 31, 2009, the NFIP had 5.6 million policies, with a total insured value of $1.2 trillion and total premiums of $3.1 billion. For most of those policies, about 80 percent, FEMA charges “full-risk” premium rates, which it considers to be actuarially sound (that is, sufficient to cover the expected value of flood claims and administrative costs). About 20 percent of the premium rates are explicitly subsidized under current law; those explicit subsidies give the NFIP a built-in actuarial deficit of about $1.3 billion per year, by CBO’s estimate. Those policies mainly cover older structures in areas at high risk of flooding.

Are FEMA’s full-risk premium rates actuarially sound?

Historically, the NFIP’s full-risk premiums have been too low to cover the flood claims and administrative costs of the policies insured at those rates. Between 1978 and 2004, premiums for such policies totaled $10.2 billion in nominal dollars, while claims and expenses totaled $10.7 billion. The result was a loss of $0.5 billion over that period on policies with full-risk rates. Taking into account the large losses of 2005, income was about half of costs over the 1978-2006 period—total premiums were $12.6 billion while claims and expenses were $24.2 billion.

Previous experience does not necessarily imply that current premium rates are too low, however, because rates have risen over time and because the frequency of future catastrophic years like 2005 is highly uncertain. In part because of that uncertainty, CBO does not have enough information about the current distribution of flood risks to calculate whether the present full-risk premiums are actuarially adequate.

Further, analyzing the methods that FEMA uses to set the full-risk rates also does not provide definitive answers. Some aspects of those methods tend to contribute to an actuarial surplus—the primary one being the additional 10 percent that FEMA includes in the rates in high-risk areas (20 percent in high-risk coastal areas) as a safety margin for uncertainty. Other aspects of the agency’s rate-setting methods tend to contribute to an actuarial deficit. FEMA is not reviewing its flood maps every five years as required by law, and some older maps do not reflect significant changes in local conditions, such as coastal erosion, which can increase the probability of flooding. In addition, evidence suggests that climate change has increased the risk of flooding from rivers and perhaps also from coastal storms, making FEMA’s models of flood frequencies out of date. Those issues may warrant attention regardless of the overall adequacy of the program’s full-risk rates.

To what extent are the NFIP’s losses attributable to properties that have experienced multiple floods?

Currently insured repetitive-loss properties (RLPs)—defined by FEMA as those that have been the subject of at least two flood-claims payments of more than $1,000 apiece in any 10-year period—account for 2 percent of current policies and 3 percent of current premiums but about 12 percent of total claims since 1978. Including formerly insured RLPs, such properties accounted for almost one-quarter of claims payments since 1978. About 23,000 RLPs nationwide have been the subject of at least four claims payments while insured, and 10,000 of those have prompted six or more payments. FEMA’s approach to reducing the cost of repetitive-loss properties focuses more on measures to mitigate the worst flood risks—such as elevating, relocating, flood-proofing, or demolishing properties—than on charging higher premiums for flood insurance. More than half of the policies covering RLPs in high-risk areas have subsidized rates.

This paper was prepared by Perry Beider of CBO’s Microeconomic Studies Division.

The federal government commits substantial budgetary resources to support housing and mortgage markets through a combination of spending programs and tax provisions. During the crisis of the past two years, the commitment expanded—to about $300 billion in 2009—from the placement into conservatorship in September 2008 of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and the creation of new housing programs. Today CBO released a brief describing, in broad terms, the array of federal activities that support housing and the recent expansion of particular programs.

As shown in the figure below, most of the federal government’s spending for housing supports homeownership. In fiscal year 2009, the federal government devoted almost four times the amount of budgetary resources to supporting homeownership (about $230 billion) as it devoted to improving rental affordability ($60 billion).

Federal Spending for Housing, 2009

(In Billions of Dollars)

The government supports homeownership by subsidizing the costs of owning a home (reducing down payments, mortgage insurance costs, and tax liability) and increasing the availability of mortgage loans. Until recently, the bulk of federal support for homeownership took the form of tax expenditures (that is, subsidies conveyed through reductions in taxes), which make it less expensive to own a home by reducing taxes for homeowners and investors.

As a result of recent actions to address the crisis, the government now provides roughly  equivalent amounts of support for homeownership through tax expenditures and spending programs. About 80 percent of the federal support for renters is provided by spending programs; the remainder is provided through tax expenditures. The federal government also shapes the housing and mortgage markets through regulation—as provided, for example, in the Truth in Lending Act and the Home Mortgage Disclosure Act.

This brief categorizes 28 federal housing activities by type of support (homeownership or rental), mechanism (spending or taxation), and budgetary cost in 2009. The largest single budgetary cost is associated with the tax deduction for mortgage interest, which resulted in an estimated revenue loss of $80 billion in 2009. On the spending side, in 2009 the Treasury Department initiated the Making Home Affordable program, which provides incentive payments to mortgage servicers and homeowners to facilitate the process of refinancing or modifying loans so that homeowners can move into lower-cost or fixed rate mortgages. The Treasury has committed up to $50 billion to that program, and Fannie Mae and Freddie Mac are expected to spend up to $25 billion—though only a very small portion of the $75 billion was spent in 2009.   

This brief was prepared by Elizabeth Cove Delisle of CBO’s Budget Analysis Division. 

In February 2009, CBO issued its estimate of spending from the American Recovery and Reinvestment Act (ARRA)—commonly referred to as the stimulus package. At that time, CBO expected that federal agencies would spend about $120 billion over the remaining months of fiscal year 2009. That figure included $14 billion in payments for health insurance premiums of unemployed workers, but those payments were ultimately recorded as a reduction to federal revenues (instead of as federal outlays, as CBO initially assumed) because the payments were conveyed by reducing the amount of withholding taxes that businesses remit, and requiring them to pass those savings on to their employees by charging lower premiums. Setting aside those payments, the estimate of roughly $106 billion in outlays proved to be quite accurate: At the close of fiscal year 2009, agencies reported spending a little under $108 billion in ARRA funds—about 1 percent higher than CBO’s initial estimate (see the table below). In a few cases, agencies that received stimulus funds for certain programs spent less than CBO expected from their regular appropriations for those programs, so the net change in outlays that can be attributed to the stimulus package was actually a bit less that CBO initially estimated.

ARRA also included provisions that reduced taxes, and the Joint Committee on Taxation estimated that the legislation would reduce federal revenues by about $65 billion in 2009. Adjusting for the reclassification of payments for health insurance premiums, that total would be $79 billion. It is not possible to determine how closely the 2009 revenue effects of ARRA were to the initial estimates because detailed data on 2009 tax collections are not yet available.

Half of the 2009 stimulus spending is attributable to two programs: $32 billion for Medicaid and $22 billion for unemployment insurance. A one-time payment to Social Security beneficiaries added another $13 billion; spending for financial assistance to states (from the new State Stabilization Fund) added $12 billion; and direct assistance to college students (mostly for Pell grants) added $7 billion. Together, those five programs account for almost 80 percent of stimulus spending in fiscal year 2009.

As shown in the following table, outlays by individual agencies differed from CBO’s estimates in both size and direction.  Here are a few key points:

• Outlays for Medicaid, in the form of increased federal payments to states, were within $0.5 billion of CBO’s estimate. Outlays for other activities of the Department of Health and Human Services (such as health research) came in several billion dollars lower than CBO’s estimate.
• A few agencies spent more than CBO expected from amounts authorized in the stimulus package for some programs and less than CBO expected from regular appropriations for those same programs. For example, stimulus spending by the Department of Education for Pell grants was about $6 billion more than CBO’s original estimate—but those higher-than-expected outlays were partially offset by lower-than-expected spending from funds provided through the annual appropriation process.
• CBO underestimated the costs of providing additional unemployment benefits under ARRA. The agency’s original estimate of such benefits was about $17 billion for 2009, but the total for the year came in about $6 billion higher.
• Infrastructure-related spending fell short of CBO estimates. For example, spending by the Departments of Transportation, Energy, and Commerce totaled just over $5 billion, compared with CBO’s original estimates of about $8 billion for those three agencies.
• Funding for a broad range of other federal agencies has been spent considerably more slowly than originally estimated. The last line in the following table shows outlays of about $6 billion in 2009 for a group of agencies that received over $60 billion in stimulus funding.

Notes

1. CBO’s March baseline estimates, which were identical to those provided in the February 13, 2009, cost estimate for the conference agreement for H.R. 1, the American Recovery and Reinvestment Act of 2009.
2. Actual outlays are based on agency reports posted on www.recovery.gov, through September 30, 2009.  CBO made adjustments for some of the loan-related cash flows that were reported as outlays of the Small Business Administration ($3.4 billion) and the Department of Agriculture ($0.2 billion), because the federal budget records as outlays the estimated subsidy costs of such loans rather than the annual cash flows for loan disbursements and repayments. CBO also adjusted the reported outlays of the Department of Labor to reflect transfers between federal government funds that were recorded as outlays but not spent ($2.8 billion).
3. CBO’s original estimate of outlays for the Department of Labor included $13.8 billion for payments of health insurance premiums for unemployed workers under COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985). Those payments ended up being classified as reductions in revenues as opposed to outlays (as CBO initially expected). The numbers shown in the table for the Department of Labor reflect an adjustment for that change in classification.

Today CBO released a letter responding to questions about the subsidies that enrollees would receive for premiums and cost sharing, and the amounts that they would have to pay, on average, if they purchased a relatively low cost plan in the new insurance exchanges to be established under H.R. 3962 as introduced in the House of Representatives on October 29. The analysis reflects the preliminary analysis of that bill that CBO, in conjunction with the staff of the Joint Committee on Taxation, released last week.

The table accompanying the letter focuses on enrollees who purchase a “reference” plan (the premiums equal the average of the three lowest-cost “basic” plans, as defined in the bill), because federal subsidies would be tied to that average. Such a plan would have an actuarial value of 70 percent, which represents the average share of costs for covered benefits that would be paid by the plan. Although premiums would vary by geographic area to reflect differences in average spending for health care and would also vary by age, the table shows the approximate national average for the reference plan—about $5,300 for single policies and about $15,000 for family policies in 2016. Enrollees could purchase a more expensive plan or more extensive coverage for an additional, unsubsidized premium—and CBO anticipates that many enrollees would do that, so the average premiums actually paid in the exchanges would be higher (although average cost-sharing amounts could be lower than those shown in the table). The figures are presented for 2016 in order to illustrate the likely situation after the proposed changes in insurance markets were fully implemented. (A downside of that approach is that the figures are harder to compare with those observed in 2009.)

Under the House bill, the maximum share of income that enrollees would have to pay for the reference plan in 2013 would range from 1.5 percent for those with income less than or equal to 133 percent of the federal poverty level (FPL) to 12 percent for those with income equal to 400 percent of the FPL. (People with income below 150 percent of the FPL, however, would generally be eligible for Medicaid and thus ineligible for subsidies within the exchanges.) After 2013, those income-based caps would all be indexed so that the share of the premiums that enrollees (in each income band) paid would be maintained over time. As a result, the income-based caps would gradually become higher over time; for example, they are estimated to range from about 1.6 percent to about 12.8 percent in 2016. Enrollees with income below 350 percent of the FPL would also be given cost-sharing subsidies to raise the actuarial value of their coverage to specified levels—ranging from 97 percent for those with income below 150 percent of the FPL to 72 percent for those with income between 300 percent and 350 percent of the FPL.

To illustrate the effects of those features, the table shows the amounts of income that would correspond to the midpoint of each FPL band, the resulting premiums that single individuals and families of four would have to pay for a reference plan if their income equaled that midpoint, and the share of their income that would be represented by the sum of the enrollee premiums and the average cost-sharing amount at that midpoint. For instance, a single person with income of $26,500 in 2016 (225 percent of the FPL) would pay a premium of about $1,900 (after getting a premium subsidy of 64 percent) and could expect to pay another $900 in cost sharing (net of federal subsidies); thus, the average payment by such a person for the premium and cost sharing combined is projected to be $2,800, or about 11 percent of income. A family of four with income of about $54,000 (also 225 percent of the FPL in 2016) could expect to pay about the same share of its income for premiums and cost sharing. (Because use of health care in a given year varies widely, many people would pay less in cost sharing than the average, but some would pay more—subject to the limits on out-of-pocket costs that are specified in the bill.)

The estimated average premiums and average cost-sharing amounts for the reference plan shown at the top of the table—before any subsidies are applied—are slightly higher than the premiums for the comparable plan shown in a similar table that CBO released on October 9 for the health care reform proposal introduced by the Chairman of the Senate Committee on Finance, as amended by the committee. (That table represented an update to a table enclosed in a letter to Chairman Baucus on September 22 that addressed the earlier Chairman’s mark.). Because the reference plans in both proposals would cover the same range of benefits and have the same extent of coverage (actuarial value), the difference in premiums cannot be attributed to a difference in coverage. Instead, the difference is the net result of a number of other provisions of each proposal and primarily reflects higher average health care costs projected for enrollees in the exchanges under the House bill than for enrollees in the exchanges under the Finance Committee’s proposal. That difference in average health costs would arise because exchange enrollees under the House bill would be slightly less healthy, on average, than exchange enrollees under the Finance Committee’s proposal—a difference that itself reflects a number of opposing factors described in the letter.

Current proposals to reform the health care and health insurance systems would affect the federal budget and the nation’s spending for health care in many ways, and those effects can be summarized using a variety of different measures. Today CBO released a letter to clarify the measures being used by CBO in its analysis of such proposals—in particular, the effects of proposals on federal budget deficits and on the magnitude of the federal budgetary commitment to health care. As concrete examples, the letter discusses the preliminary analysis recently completed by CBO and the staff of the Joint Committee on Taxation (JCT) of the proposal put forward by the Chairman of the Senate Committee on Finance, as amended by the committee, and of the preliminary analysis by CBO and JCT of H.R. 3962, the Affordable Health Care for America Act, which was introduced yesterday in the House of Representatives.

Effect on Federal Budget Deficits

CBO and JCT’s analysis of a health care reform proposal focuses on its net impact on federal budget deficits during the 10 year budget window from 2010 through 2019. This “bottom line” reflects all of the effects of a proposal on spending and revenues, regardless of whether or how they are related to the provision of health care. CBO and JCT estimated that the proposal approved by the Committee on Finance would result in a net reduction in federal budget deficits of $81 billion over the 2010–2019 period, and that H.R. 3962 would result in a net reduction in federal budget deficits of $104 billion over the same period.

Effect on the Federal Budgetary Commitment to Health Care

CBO’s letters providing preliminary analyses of the proposal approved by the Senate Committee on Finance and H.R. 3962 also addressed the effects of the proposals on “the federal budgetary commitment to health care.” CBO used that phrase in a letter earlier this year to describe the sum of net federal outlays for health programs and tax preferences for health care. CBO has used this measure because some Members have expressed interest in the federal government’s overall role in the financing of health care—both under current law and under alternative reform proposals. (Whether the federal role should be expanded, contracted, or held the same is a policy choice, and CBO, as always, makes no policy recommendations.)

Federal outlays for health programs are not an adequate gauge of that overall role because tax expenditures for health care are substantial under current law and because new tax credits to help purchase health insurance are a significant part of some reform proposals. Similarly, federal tax expenditures for health care do not, by themselves, capture this overall role because federal spending on health care is also substantial under current law and because such spending would increase significantly under some reform proposals. By including both the federal government’s spending for health care and the subsidies for health care that are conveyed through reductions in federal taxes, the “federal budgetary commitment to health care” represents a broad measure of the resources allocated by the federal government in this area—and a measure that is independent of the extent to which outlays or tax provisions are used to channel those resources.

For example, how would the proposal approved by the Senate Finance Committee affect the budgetary commitment to health care? CBO and JCT’s estimates imply that the proposal would increase the federal budgetary commitment to health care by about $85 billion over the 2010-2019 period. (Again, we estimate that the proposal would result in a net reduction in federal budget deficits of $81 billion over the same time period.)

Bending the Cost Curve

Major proposals to reform health care would affect not only the federal budget but also spending for health care by individuals, firms, and other levels of government. A broad measure encompassing those effects would be the impact on total national health expenditures. However, CBO does not analyze national health expenditures as closely as it does the federal budget, and at this point CBO has not assessed the net effect of health care reform proposals on those expenditures, either within the 10-year budget window or for the subsequent decade. That is, CBO has not evaluated whether reform proposals would lower or raise—or bend down or up—the “curve” of national health expenditures.