Health Care Reform in the House: A Post Mortem

Late Saturday night by the slimmest of margins, the House of Representatives passed H.R. 3962 otherwise known as the Affordable Health Care Act for America – three votes the other way and the Bill would not have passed.  The Bill weighs in at over 2,000 pages (2,034) and represents the first major “stab” at reforming the U.S. health care system (the Senate has not yet debated or voted on its version).  Suffice to say, the Bill is ambitious in scope and its passage came as a result of a week’s worth of deal-making among House democrats.

Looking over the Bill and reviewing all of the analysis available, here’s the “post-mortem” on the Affordable Health Care Act for America.

• The purported cost of the Bill is approximately $1.2 trillion over 10 years.  The actual cost is closer to $3 trillion when fully phased in after 2014.  The $1.2 trillion price is derived by using ten years of revenue against only seven years of expense.  This mathematical twist occurs as a result of the revenue implications (taxes and Medicare spending reductions) beginning immediately with the Bill’s benefits not kicking in until three years later.  A matching of Revenues with Expenses (full revenues vs. a full ten years of expense places the price at closer to $3 trillion).
• From a deficit perspective, the Bill will add conservatively, $500 billion to the deficit over ten years.  Once fully phased-in, the Bill’s expenditures exceed its revenues from all sources by more than $1 trillion.  Nearly $500 billion of revenue is attributable to one-time Medicare spending reductions.
• Spending cuts under Medicare total nearly $500 billion.  The majority of these cuts are in the form of payment reductions to providers for direct care.
• Tax increases on anyone earning over $500,000 annually ($1 million as a couple) are included in the Bill as a source of revenue to pay for the Bill’s expenditures.  There is no exclusion for small businesses from this tax increase.  At issue for some economists and analysts is whether the figures quoted as coming from this source are anywhere close to accurate (overstated).  The tax break-down is as follows.  A total of $729 billion, $460 billion from individuals and small businesses, $135 billion in employer coverage mandates and fees, and $33 billion in individual mandates.
• The price tag for the “doctor fix” (restoring projected cuts in physician fees based on the fee schedule’s ties to GDP growth) is $270 to $300 billion.  There is no revenue attached to the Bill to account for this adjustment.  In short, the Bill has a $300 billion “hole” due to the “doctor fix” being addressed outside of the Bill.
• The majority of the source for additional coverage of the uninsured and underinsured is an expansion of Medicaid.  Over the next ten years, the states will be required to spend an additional $34 billion to accommodate this expansion.  If the federal government decides to somehow cover this expansion with funding, the Bill provides no additional funding to cover the added spending.  As of this fiscal year, only two states are without a projected budget deficit – Montana and North Dakota.  In 2009, the Medicaid SNF shortfall stands at $15.64 per day ( the difference between Medicaid per diem payments and allowable costs per day).
• The Bill contains no provision for tort reform. 
• Federal funding for abortions was deleted from the Bill at the last hour, except in the case of rape or incest.
• The Bill disqualifies Medical Savings Accounts.
• There is no provision within the Bill to allow insurance companies to sell policies across state lines.  In other words, no language was included within the Bill prohibiting the present practice of States to regulate individual insurance policies and to impose inidividual mandates for coverage.
• The Bill includes a Government Option or a government sponsored plan that is required to negotiate with providers for rates as opposed to using a Medicare benchmark.
• Estimates of the Bill’s requirements imply that 94% of all Americans will be insured via this legislation by full phase-in (2014). 

The next step in this process is for the Senate to put forth and to vote upon, its version of health care reform.  To date, the Senate debates and legislative trials vary from the House bill by a wide margin.  The probability that the House version and its critical components will appear in a Senate version is small as Republicans and Conservative Democrats theoretically, make up a majority in the Senate.  The Senate, because of its more conservative make-up, will be far less likely to entertain a government option, a price tag anywhere close to $1 trillion (Sen. Baucus had difficulty passing his bill through committee at a price of less than $800 billion) or to include the tax increases as a principal source of funding found in the House bill.