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Senate Finance Bill Will Cost $829 Billion Over Decade

Janice Simmons, for HealthLeaders Media, October 8, 2009

Congressional Budget Office (CBO) preliminary estimates are in, and the bill approved by the Senate Finance Committee early last Friday morning comes in at $829 billion over 10 years—an amount roughly 8% below what was initially predicted by panel chairman, Sen. Max Baucus (D-MT).

The cost mainly reflects credits and subsidies provided through state insurance exchanges, increased outlays for Medicaid and the Children's Health Insurance Program (CHIP), and tax credits for small employers. Those costs will be partly offset by $201 billion in revenues from excise taxes proposed on high premium—or "Cadillac"—insurance plans and $110 billion in savings from other sources.

In a letter to Baucus and Sen. Charles Grassley (R-IA), the panel's ranking minority member, CBO Director Douglas Elmendorf said the measure is expected to reduce the overall federal budget deficit by $81 billion over 10 years because the reforms, as proposed, will reduce healthcare costs.

The $829 billion would be offset as well by spending changes related to Medicare and other federal health programs (by $404 billion over the next decade), and by placing fees on insurers, pharmaceutical and medical device manufacturers, and other areas of the healthcare industry that could gain financially with potential inclusion of the 29 million new nonelderly customers added under reform legislation.

Roughly 23 million people could purchase their own coverage through the new insurance exchanges, and an estimated 14 million more would become enrollees in Medicaid and CHIP. Overall, the share of nonelderly residents with insurance coverage would rise from about 83% currently to about 94%. Approximately 25 million nonelderly residents would be left uninsured—about one third of whom would be illegal immigrants.

Elmendorf also said in the letter that overall, the added revenues and cost savings "are projected to grow more rapidly than the cost of the coverage expansion." Those estimates, though, "are all subject to substantial uncertainty."

Some of the variables noted in the CBO correspondence is the creation of a Medicare Commission. As proposed in the Senate Finance bill, the commission would recommend changes to Medicare "to limit the rate of growth" in that program's spending. CBO said that its projected longer term savings for the proposal assumes that the commission "is relatively effective in reducing costs"—beyond other proposed reductions.

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