CBO: $940 Billion Health Overhaul Saves More Than Previous Bills

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The Democrats' health care reform is projected to cost $940 billion over the first ten years, reduce the deficit $130 billion over that time and save $1.2 trillion in the second ten years. That's the conclusion of this long-awaited report from the Congressional Budget Office and Joint Committee on Taxation on the reconciliation bill that could get a House vote on Sunday. This will not persuade any Republicans to vote for health care, but it could help push a handful of conservative House Democrats to vote for the overhaul.

Anyway, that's the politics. Let's check out the policy. What makes this health care reform plan different from all other health care reform plans? Basically it comes down to more subsidies and a weaker tax on expensive insurance plans. But wouldn't those two items dramatically undercut health care's cost savings? Yes. So how come this reform saves more money than either the Senate or House bill? Good question.

It's all about delaying the pain. The subsidies are more generous, but they grow more slowly until they eventually fall back to the levels that existed in the House bill, pre-reconciliation. The excise tax on expensive employer insurance plans (note: all employer-provided insurance plans are currently tax free) is delayed until 2018 and hits fewer Americans in the first few years, but it grows faster than in the Senate or House plan. The reconciliation proposal indexes the excise tax to the rate of general inflation rather than inflation plus one percentage point. In short: by messing with growth rates, Democrats are front-loading the benefits of the plan and leaving the cost-cutting goodies for the second decade.

Here's where we get into the debate about whether Democrats are introducing a benefit that future governments will be unwilling to pay for. I imagine conservatives might hang on to the last  clause of this CBO sentence

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. 

We can go back and forth on whether the cost cutting measures in HCR will be more like the Medicare reforms that stuck through the 1990s or the Alternative Minimum Tax, which gets a regular fix. I don't know what future governments will do to this health care reform bill if it passes. But I know that this would change the default position. If future congresses don't want to live with the measures that are projected to cut more than $1 trillion in health costs in the 2020s, they will have to vote to defeat those measures. Today there is no foundation on which to build any kind of health care reform. There is only a system that doesn't work and tens of millions of Americans locked out of it. By next week, we could have a bill that covers 95% of legal residents, reduces the deficit, and lays the groundwork for more significant cost cutting in the future. I guess you know where I stand.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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