One of the key differences between the early draft of the House health bill and the Senate Finance draft was the different long-term implications of the financing mechanism. The House bill is financed by taxes on rich people. Since health spending is increasing faster than the overall economy, this meant that even though the House bill was deficit neutral in the 10-year CBO window, by the end of that period expenditures are rising faster than revenues. The Senate Finance bill, by contrast, raises revenue by phasing out the tax exclusion of employer-provided health insurance. Initially it does this by taxing only a small number of “Cadillac” plans, but over time the tax’s bite grows and grows. That means you have fiscal sustainability over the long run.
Senate Kent Conrad (D-ND) tried to stack the deck in favor of his preferred option by getting the CBO to consider not just a 10-year window, but also a 20-year window. The two bills looked about the same in a 10-year view, but Finance’s bill looked much better at 20. The new House bill responds to that challenge by tweaking things to achieve 20-year deficit neutrality:
A previous version of the House bill carried an estimated cost of $1.04 trillion over 10 years, but House negotiators were able to lower the price tag — in part by expanding Medicaid coverage to a broader slice of the population, the equivalent of all individuals who earn about $16,200 per year. The original House legislation had sought an increase to 133 percent of the federal poverty level, or about $14,400 per year, the same level proposed in the Senate bill.
The adjustment reflects findings by congressional budget analysts that covering the poor through Medicaid — which pays providers far less than Medicare — is much more cost-effective than offering subsidies for private insurance policies, something the bill would provide to middle class individuals who lack access to affordable coverage through their employers.
As usual in the health care debate, I think the House is right about everything except this tax point. Getting more aggressive about Medicaid expansion is a great idea. It hasn’t attracted the same volume of activist interest as the “public option” issue, but Medicaid is, of course, a public program. And it’s an important one. This is good policy.
That said, no matter what you can do in any window, it’s still the case that phasing the tax exclusion of employer-provided health care is better policy for the long run. It would, over time, reduce a significant source of economic distortion, reduce overall health cost growth, and improve long-term fiscal sustainability.