Posts Tagged ‘health reform’

$900 Billion is $900 Billion–or is it?

Monday, December 28th, 2009

In his speech on September 9th, President Obama surprised listeners by declaring that health reform would not cost more than $900 billion. The President also committed to ensuring that the reform was fully paid for and would not add to the deficit. Prior to this speech, many independent analysts estimated the cost of reform at $1.2 trillion or higher. It was not clear then, nor is it clear now, how the administration arrived at the $900 billion figure. Nonetheless, it quickly became the spending ceiling for both the House and Senate as they worked to craft legislation.

Now as passage of Senate legislation approaches, differences in how the House and Senate calculate that $900 billion loom large and could have a dramatic affect on how much financial protection a final bill provides to low- and moderate-income families. The House calculated $900 billion as the “net cost” of the coverage provisions, while the Senate calculated $900 billion as the “gross cost.” The gross cost is the total cost of Medicaid and CHIP expansions, subsidies for individuals, and small business tax credits. Subtracting revenue inherent in reform (i.e. the revenue generated by the employer and individual responsibility payments) produces the net cost.

To illustrate the difference between net and gross, imagine that you are shopping for a jacket and you have decided it cannot cost more than $100. You go to the store and see a jacket that has a price tag of $120 (gross cost). There is also an in-store coupon for $20 off. According to the Senate, you could not buy the jacket because its price exceeds your $100 limit. According to the House, you could buy the jacket because with the coupon you would not spend more than $100 (net cost).

Why does it matter?
Bringing it back to health reform, according to the Congressional Budget Office, measured on a net basis the House bill provides $891 billion in coverage expansion while the Senate bill provides only $614 billion. On a gross basis the House bill costs $1,052 billion while the Senate bill costs $871 billion. In more human terms, the House bill provides greater premium assistance, especially for low-wage workers who make up the bulk of the uninsured; better benefits for nearly everyone who is eligible for a subsidy; and starts expanding coverage a full year earlier than the Senate bill. If it is agreed that $900 billion refers to the net cost of the bill, there is plenty of room under the $900 billion ceiling to improve the affordability provisions offered in the Senate (see table). But, if $900 billion refers to the gross cost as in the Senate version, then there is very little room for additional improvements even though many in the Senate agree that improvements are needed.

Gross and Net Spending: House vs Senate

Gross Spending
(in billions)

Room for improvement under $900 billion cap

Net Spending (in billions)

Room for improvement under $900 billion cap

House

$1,052

-$152 billion

$891

$9 billion

Senate

$871

$29 billion

$614

$286 billion

Who can resolve the difference?
Only President Obama knows for sure what he meant when he laid out the number $900 billion. His endorsement of the House legislation appears to suggest that he finds the House approach acceptable, but whether that approach prevails in conference remains to be seen. Low- and moderate-income families have a lot riding on the outcome.

p.s. The Health Reform Insider is taking a much-needed break this week. We’ll be back next Monday with post-Senate passage/House-Senate merger news and analysis. Happy New Year!

- Michael Miller, director of strategic policy

Worth the Wait

Thursday, September 10th, 2009

For days, the tension has been mounting over what President Obama would say when he addressed the nation on health care.  Last night, with an eloquent prime time address to a joint session of Congress, the President powerfully rebooted the debate on health care.

The President challenged critics to engage in a more civil and fact-based discourse – a challenge that many Republican Congressmen failed to meet.  In an unusual breach of protocol, Republicans sometimes booed the President, and one Republican Congressman even shouted out “you lie!”  In his response to the President’s speech, Congressman Boustany reiterated unsubstantiated charges of “government takeover” and “rationing” that the president had refuted just moments before.  The net effect of all of this was to make Obama seem more reasonable and unflappable – utterly Presidential – in the presence of some of his more vociferous (and less self-possessed) critics.

Coming into the evening, the President had to achieve several big goals.  He needed to reassure a nervous public, explain what he was proposing, and reenergize his base both in Congress and in the nation.

President Obama did that and more. He came across as both passionate and calmly reasoned – again, a sharp and welcome contrast to the wilder critics that have dominated the cable news media.  At same time, the President staked out the high ground in the debate by reaching out and embracing ideas from Republicans.

He also successfully navigated the treacherous political waters around the “public option.”  While he made a clear case for a public option and took on the scare-mongers directly, he also strongly cautioned the left against making the public plan a litmus test for reform.

President Obama did not shy away from engaging with opponents.  He directly addressed the most common charges made against reform, giving special attention to issues affecting seniors.  He clearly restated his commitment to allow people to keep the coverage they have, to protect the Medicare program and to make sure health care reform does not add to the deficit.

Recent polls show that most Americans are confused by the debate. After last night’s speech, the key elements of reform–including insurance reforms, individual and employer responsibility and sliding scale subsidies—should be much clearer to the public. The President also reiterated the need for an exemption for those who still could not afford coverage. However, he did not engage on a crucial question for many low- and moderate-income households: Just what constitutes affordable coverage?

The President’s closing words speak for themselves:

That large-heartedness — that concern and regard for the plight of others — is not a partisan feeling.  It’s not a Republican or a Democratic feeling.  It, too, is part of the American character — our ability to stand in other people’s shoes; a recognition that we are all in this together, and when fortune turns against one of us, others are there to lend a helping hand; a belief that in this country, hard work and responsibility should be rewarded by some measure of security and fair play; and an acknowledgment that sometimes government has to step in to help deliver on that promise….

I understand that the politically safe move would be to kick the can further down the road — to defer reform one more year, or one more election, or one more term.

But that is not what the moment calls for.  That’s not what we came here to do.  We did not come to fear the future.  We came here to shape it.

(You can read the full remarks here.)

–Michael Miller, Director of Strategic Policy