The Congressional Budget Office changes its mind about the House health reform bill's cost.

How to fix health policy.
Nov. 27 2009 7:37 AM

Psst: The House's Health Bill Is Cheaper

CBO changes its mind about the Pelosi bill's cost.

Click here for a guide to following the health care reform story online.

Nancy Pelosi. Click image to expand.
Nancy Pelosi 

On Nov. 20, when all eyes were on the Senate in anticipation of its vote to proceed with debate on health reform, a significant development in the House went largely unnoticed: The 10-year price tag for its bill dropped by $29 billion.

This might at first seem a trivial change, considering that the Congressional Budget Office estimates the House bill to increase federal spending by more than $1 trillion over 10 years. By contrast, CBO estimates the Senate bill to increase federal spending by a mere $848 billion. Those comparative figures, combined with the presence in the Senate bill of various cost-saving features absent in the House bill, have led many commentators to state that the Senate bill does a better job than the House bill of controlling medical inflation.

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That may still be true with regard to the private market. But when it comes to the federal budget (which 95 percent of debate surrounding the bill focuses on), it isn't true. The House bill, superior in nearly every respect  to the Senate bill—its abortion ban being a notable exception—turns out to be better for the deficit, too.

The mathematically inclined may ask: How can this be? Subtract $29 billion from the House's $1 trillion price tag and you still get $971 billion. That's more, not less, than the Senate's $848 billion price tag. Ah, but that's working from the wrong set of figures. By peculiar convention, most discussion of health care reform is focused on the gross (new spending), not the net (new spending minus planned spending cuts and tax revenues). CBO's estimates of the health reform bills' savings and tax revenues are widely judged by noneconomists to be too high, but if anything, they're probably too low. That's because CBO has a history of low-balling projected savings from health care legislation.

CBO's net calculation on the Senate health reform bill is that, when you consider new spending, planned spending cuts, and tax revenues, it will reduce the deficit by $130 billion over 10 years.

The corresponding net calculation on the House health reform bill has bounced up and down a good deal. When House Speaker Nancy Pelosi, D-Calif., introduced her "blended" bill, CBO calculated that it would reduce the deficit by $104 billion over 10 years. When the bill's chief sponsor, Rep. John Dingell, D-Mich., introduced a manager's amendment altering the bill in various ways, CBO crossed out $104 billion and scribbled in $129 billion. Better! Then Dingell revised his manager's amendment, prompting CBO to cross out $129 billion and scribble in $109 billion. Worse! No subsequent change to the House bill had any significant bearing on its cost. After the House bill passed, CBO was still projecting it would save $109 billion over 10 years.

Then, on Nov. 20, CBO announced it had made an error regarding the cost of Community Living Assistance Services and Support, a new, voluntary insurance program to cover nursing-home and other long-term care for the elderly and the disabled. The provision, which was championed by the late Sen. Edward Kennedy, requires participants to pay premiums for at least five years before they become eligible to receive benefits. Consequently, the program will in its early years reduce rather than increase the cost of health reform.

(Over the long term, CLASS is supposed to break even—the legislation mandates that premiums, plus accumulated interest on those premiums, cover the bill's full cost—but current projections have it losing money after the 10-year window, perhaps as early as 2025. Barring a spectacular bull market, this will compel a future premium increase. But I digress.)

Originally, CBO projected that over the next 10 years, CLASS would reduce the deficit by $72 billion. That calculation overlooked the likely participation of nonworking spouses in the program. This oversight caused CBO to calculate the average monthly premium at $123, when really it should have calculated it at $146. Corrected for this error, CLASS would reduce the deficit not by $72 billion but by $102 billion. This $30 billion difference translates into a reduction of the House health care bill's 10-year cost by $29 billion. So instead of saving $109 billion, CBO now says the House bill would save $138 billion. (Yes, that leaves $1 billion unaccounted for. If you happen to find it, please send it back to the Treasury.)

CBO estimates the Senate bill will reduce the deficit by $130 billion over the next 10 years. It is now saying that the House bill would reduce the deficit by $8 billion more than that. Granted, that's not a huge difference. But for months, fiscal conservatives have been taking the Senate bill much more seriously the House bill. Time to reconsider.

Update, 4:30 p.m.: I may be overestimating the degree to which anyone is willing to discuss these numbers rationally. Brian Beutler reports on Talking Points Memo that Republican senators like Minority Leader Mitch McConnell, R-Ky.m Judd Gregg, R-N.H., and John Ensign, R-Nev., are running around saying health care reform will cost $2.5 trillion. That's twice what CBO estimated the House bill's gross spending total to be (before it calculated that taxes and spending cuts would reduce the bill's 10-year net cost to negative $138 billion). Beutler makes an earnest attempt to figure out what McConnell and Co. are talking about before concluding that their number is "made entirely out [of] whole cloth."

E-mail Timothy Noah at chatterbox@slate.com.

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

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