CBO Re-Estimates Health Reform Bill and Finds It's Budget Neutral

What a difference a day makes—especially on Capitol Hill with the House Tri-Committee's health reform legislation (HR 3200).

Late on Friday, hours after two House committees—Ways and Means and Education and Labor—approved reform legislation, the Congressional Budget Office (CBO) had bad news: HR 3200 would result in a net increase in deficit spending of $239 billion during the next 10 years, according to its analysis. But House leadership immediately challenged the findings—and CBO changed its tune hours later.

The House bill, CBO said, was able to target key areas for savings. However, a key trigger in increasing Medicare spending occurred when the existing annual "sustainable growth rate" (SGR) in the Medicare physician fee schedule (with a 21% reduction in payment rates scheduled for 2010) was replaced with an inflation-based update.

In following years, rates would reflect separate updates for "evaluation and management" and other services. CBO estimated that those changes in the physician payment rates ultimately would add up to $245 billion in changed physician rates between 2010 and 2019.

So, did that create a deficit? Not exactly, said Peter Orszag, director of the Office of Management and Budget (and former CBO director). "The only reason that the bill shows a deficit" is because of the "payments to physicians...once you take that part out, the bill is deficit neutral," Orszag told Fox News on Sunday.

Those reformed Medicare physician payment costs, however, should not have been included in CBO's net calculations, according to a release from the three House committee leaders issued on Saturday. Instead, they will be absorbed under the upcoming statutory "pay-as-you-go" budgetary legislation that currently is pending in the House. (With so-called "paygo," the federal government cannot launch new tax cuts or entitlement programs without finding a way to pay for them.) This would make HR 3200 deficit neutral over the 10 year budget window—and even produces a $6 billion surplus.