Late last month, the GOP-controlled House passed a continuing resolution, which the Senate rejected yesterday, that sought to lower federal spending by defunding the Affordable Care Act for the remainder of the year. Rep. Denny Rehberg (R-MT) offered an amendment — which became section 4017 of the CR — that prohibits funds in the bill from being paid to any employee, officer, contractor, or grantee of any department or agency funded by the Labor, Health and Human Services, and Education, and Related Agencies portion of the bill to implement the provisions of the health care law. The measure passed by a vote of 239-187.

Well today, the Congressional Budget Office (CBO) released its cost estimate for Rehberg’s amendment and found that despite the Republican’s stated goal of reining in federal spending, defunding the ACA piece by piece increases costs over the long-term:

CBO estimates that enacting the prohibition on using new fiscal year 2011 funding to carry out those laws would reduce spending by $1.6 billion during the remainder of 2011, but would increase spending by $3.1 billion in fiscal year 2012 and by smaller amounts in each of the fiscal years 2013 through 2021. Net additional costs would total $3.9 billion over the 2011- 2016 period and $5.6 billion over the 2011-2021 period. In addition, CBO and JCT estimate that the prohibition would reduce federal revenues by $0.1 billion over both the 2011-2016 and 2011-2021 periods.

CBO explains that eliminating discretionary funding in 2011 would delay or postpone the completion of regulatory processes for ongoing programs, new programs, and reduce “compliance with changes to the tax code.” Consequently, the agency would not seek to recoup Medicare overpayments that would occur after the expected changes in payment rates, or benefit from all of the savings of delivery reforms (the agency would have less time to invest in such research). The IRS would also be prevented from administering tax credits and taxes, resulting in “some underpayment of the new excise taxes and some over-claiming of the new tax credits,” CBO concludes.

The report is another blow to the Republican effort to undo the health legislation. An earlier estimate of the GOP’s proposal to eliminate the entire ACA (which passed the House of Representatives on January 19, 2011) found that complete repeal would lead to an increase in the “federal budget deficits of $210 billion over the 2012-2021 period” and grow the number of uninsured by 33 million, “leaving a total of about 57 million nonelderly people” without coverage.

Yesterday, the Energy and Commerce health subcommittee held a hearing dedicated to stripping $105 billion in mandatory spending out of the Affordable Care Act that would fund initiatives like the state-based exchanges and the prevention and public health fund. Conservative Republicans like Rep. Michele Bachmann (R-MN) and Steve King (R-IA) have accused the administration of circumventing the regular appropriations process and stashing away the dollars in the health law. At the hearing Rep. Joe Pitts (R-PA) “called the mandatory spending a ‘slush fund’ for the Health and Human Services secretary, and vowed to introduce legislation” to reclassify some of the spending as discretionary. Pitts could now add the language to legislation raising the debt limit or funding the government through 2011.

But Rep. Henry Waxman (D-CA) argued that the mandatory funds aren’t nearly as unusual or “secretive” as Republicans have suggested. Aside from being openly discussed in numerous Congressional Budget Office (CBO) estimates throughout the health care debate, both parties have relied on mandatory spending to fund various initiatives. The mandatory funding in the law was designed to provide some programs with stable funding, Waxman said:

WAXMAN: Every member of this committee has a history of voting for both mandatory and discretionary. In fact, the Republican-led Congress passed legislation that included over $400 billion of mandatory spending that was not paid for in the Medicare Drug Bill. It’s a fundamental part of the responsibility of an authorizing committee like Energy and Commerce that has jursdicition over programs like Medicare and Medicaid and CHIP to determine where mandatory funding is needed to ensure program sustainability.

Watch it:

Waxman stressed that the mandatory spending in the law funded Republican-supported initiatives like providing states with flexibility to design their own state-based exchanges and investing in primary care, prevention, and funding to build school clinics. Rep. Lois Capps (D-CA) brought a “Dear Colleague” letter written by Rep. Michael Burgess (R-TX) in support of the school clinics before the 112th Congress convened. “There’s going to be all kinds of programs I’ve supported in the past we simply cannot fund today,” Burgess responded.

Democrats believe that mandatory spending is fairly immune from defunding because Republicans would have to change the law rather than simply cut off appropriations. Thus far, Republicans like King have failed to eliminate mandatory spending for the law and during an appearance on Sean Hannity’s radio show yesterday, Bachmann lambasted Congressional Republicans for not expressing more outrage over the “hidden” funding. “It’s like we’re in the Twilight zone here. I’m thinking, am I the only one who remembers there was no discussion of this $105 billion,” she asked.

Republicans have responded to the temporary waivers granted by HHS to states and employers by accusing the agency of cronyism and arguing that the American people also deserve a waiver from the health care law. Sen. John Barrasso (R-WY) made this argument yesterday on the floor. Rep. Mike Rogers (R-MI) went a step further, introducing legislation that would allow individuals and employers to opt out of their respective coverage requirements:

Mr. Rogers’s bill would allow applications for waivers to the requirement that larger employers offer affordable insurance or pay a penalty, in addition to allowing for waivers to the individual insurance mandate. Each provision takes effect in 2014 under current law.

The legislation by Mr. Rogers, who is chairman of the House Intelligence Committee, so far has one Democratic co-sponsor, Rep. Dan Boren of Oklahoma, who is among that chamber’s strongest Democratic opponents of the law.

But current law already provides a sort of waiver for individuals. For instance, Americans who have to spend more than 8 percent of household income on coverage can apply for a hardship waiver, while those with religious objections to purchasing coverage will also be exempt from the requirement. Certain states that apply for an innovation waiver can also do away with the mandate for their residents.

Rogers is undoubtedly asking for far larger exemptions, but such an approach would allow younger and healthier individuals to opt out of purchasing coverage and drive up insurance costs for everyone else. It would, in other words, lead to the kind of death spiral that the individual mandate seeks to prevent.

As for the employer requirement, it’s already fairly porous. Unlike the pay or play employer mandate that was part of earlier drafts of the law, the existing free rider provision doesn’t require small businesses with more than 50 workers to offer coverage. Rather, by 2014, businesses with more than 50 employees that choose not to offer insurance, but have at least one full-time employee who receives a federal tax credit through an exchange, must compensate the government for that expense. Of the two provisions, this one can surely use some modification, since it could encourage employers to fire, or not to hire, low-wage workers with children or unemployed spouses who qualify for government assistance.