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www.cbo.gov 
CONGRESSIONALBUDGET OFFICE
Douglas W. Elmendorf, Director U.S. Congress Washington, DC 20515 
July 14, 2009Honorable Charles B. RangelChairmanCommittee on Ways and MeansU.S. House of RepresentativesWashington, DC 20515Dear Mr. Chairman:The Congressional Budget Office (CBO) and the staff of the Joint Committee onTaxation (JCT) have completed a preliminary analysis of the specificationsrelated to health insurance coverage that are reflected in draft legislation calledAmerica’s Affordable Health Choices Act, which was released by the House tri-committee majority group on July 14, 2009.
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Among other things, thosespecifications would establish a mandate for most legal residents to obtaininsurance, significantly expand eligibility for Medicaid, and set up insurance“exchanges” through which certain individuals and families could receive federalsubsidies to substantially reduce the cost of purchasing that coverage. Theanalysis presented here does not take into account other parts of the proposal thatwould raise taxes or reduce other spending (particularly in the Medicare program)in an effort to offset the federal costs of implementing those coveragespecifications.The attached tables summarize our preliminary assessment of the coveragespecifications’ budgetary effects and their likely impact on rates and sources of insurance coverage for the nonelderly population. According to that assessment,enacting legislation that embodied those specifications would result in a netincrease in federal budget deficits of $1,042 billion over the 2010–2019 period.By 2019, CBO and the JCT staff estimate, the number of nonelderly peoplewithout health insurance would be reduced by about 37 million, leaving about17 million nonelderly residents uninsured (nearly half of whom would beunauthorized immigrants). It is important to note, however, that those estimatesare based on specifications provided by the tri-committee group rather than ananalysis of the language released today. For that reason and others outlined below,those figures do
not 
represent a formal or complete cost estimate for the coverage provisions of the draft legislation.
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The House tri-committee group consists of the Committee on Ways and Means, the Committeeon Energy and Commerce, and the Committee on Education and Labor.
 
Honorable Charles B. RangelPage 2
Key Specifications Related to Health Insurance Coverage
The specifications provided by the tri-committee group would take several stepsto increase the number of legal U.S. residents who have health insurance. Startingin 2013, nonelderly people with income below 133 percent of the federal povertylevel (FPL) who were not already eligible for Medicaid would be made eligiblefor that program, and the federal government would pay all of the costs of covering people who became newly eligible. (States would also be required tomaintain their current eligibility levels for Medicaid indefinitely.) In addition, thefederal government would establish insurance exchanges throughout the countryand, more importantly, would subsidize the purchase of health insurance throughthose exchanges for individuals and families with income between 133 percentand 400 percent of the federal poverty level, also starting in 2013. In that year, the proposal would also establish a requirement for legal residents to obtain insuranceand would impose a financial penalty on most people who did not do so (the sizeof which would generally vary with their income).The proposal would also impose a “play-or-pay” requirement on employers, whowould either have to offer qualifying insurance to their employees and contributea substantial share toward the premiums, or pay a fee to the federal governmentthat would generally equal 8 percent of their payroll. Small employers (those withan annual payroll of less than $250,000) would be exempt from thoserequirements. As a rule, full-time employees with a qualifying offer of coveragefrom their employer would not be eligible to obtain subsidies via the exchanges, but an exception to that “firewall” would be allowed for workers who had to paymore than 11 percent of their income for their employer’s insurance. In that case,the employers would have to pay an amount equal to the per-worker fee due for firms subject to the “play-or-pay” penalty. Firms with relatively few employeesand relatively low average wages would also be eligible for tax credits to cover upto half of their contributions toward health insurance premiums.The proposal would also establish a “public plan” available only through theinsurance exchanges. That plan would be set up and run by the Secretary of Health and Human Services (HHS). On average, it would pay Medicare rates plus5 percent to physicians and other practitioners (and those rates would not bedetermined by the sustainable growth rate formula that is used to set rates for  physicians in Medicare but instead would be increased over time using an indexof physicians’ input costs). On average, the public plan would pay Medicare ratesfor hospital and other services and supplies on fee schedules, and negotiated ratesfor drugs or other items or services not on a fee schedule. Providers would not berequired to participate in the public plan in order to participate in Medicare. (Amore detailed summary of the proposal’s key provisions is attached.)
 
Honorable Charles B. RangelPage 3
Important Caveats Regarding This Preliminary Analysis
There are several reasons why the preliminary analysis that is provided in thisletter and its attachments does not constitute a comprehensive cost estimate for the coverage provisions of America’s Affordable Health Choices Act:
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First, our analysis was based on specifications regarding insurance coveragethat were provided by the tri-committee group and that differ in importantways from the “discussion draft” version of legislative language that wasreleased on June 19, 2009. The specifications that we analyzed are supposedto be reflected in the draft language released by the three committees today, but we have not yet been able to analyze that language to determine whether itconforms to those specifications. Our review of that language could have asignificant effect on our analysis. More generally, as our understanding of thespecifications improves, that also could affect our future estimates.
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Second, some effects of the proposal have not yet been fully captured in our analysis. In particular, we have not yet estimated the administrative costs tothe federal government of implementing the specified policies, nor have weaccounted for all of the proposal’s likely effects on spending for other federal programs. We expect to include those effects in the near future, but we alsoexpect that they will not have a sizable impact on our analysis.
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Third, the budgetary information shown in the attached table reflects many of the major cash flows that would affect the federal budget as a result of implementing the specified policies, and it provides our preliminaryassessment of the proposal’s net effects on the federal budget deficit (subjectto the caveats listed above). Some additional cash flows would appear in the budget—either as outlays and offsetting receipts or outlays and revenues—butwould net to zero and thus would not affect the deficit. CBO and the JCT staff have not yet estimated all of those cash flows but expect to do so in the near future.
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Those additional cash flows would include the premiums collected bythe public plan and its outlays as well as risk-adjustment transfers from planswith relatively healthy enrollees to plans with relatively unhealthy enrollees.
Likely Effects of the Proposal
The proposal would have significant effects on the number of people who areenrolled in health insurance plans, the sources of that coverage, and the federal budget (as shown in the attached tables).
Effects on Insurance Coverage.
Under current law, the number of nonelderlyresidents (those under age 65) with health insurance coverage will grow fromabout 217 million in 2010 to about 228 million in 2019, according to CBO’s
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For a discussion of the considerations that affect whether and how various cash flows should bereflected in the federal budget, see Congressional Budget Office,
The Budgetary Treatment of Proposals to Change the Nation’s Health Insurance System
,Issue Brief (May 27, 2009).
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