House Releases Responsible Health Package

At a time when fiscal restraints are being disregarded, a House bill released yesterday would responsibly pay for extensions of the Children's Health Insurance Program (CHIP), Community Health Center funding, and several health extenders. The $18 billion cost of extending these policies would be fully offset with savings that would mostly continue beyond the ten-year window. The Senate should adopt a similar approach, rather than allowing these costs to be added to the debt.

The CHAMPIONING HEALTHY KIDS Act, like its Senate companion, would reauthorize CHIP through Fiscal Year (FY) 2022 while phasing down the enhanced matching rate temporarily put into place under the Affordable Care Act that is in effect for FY 2016-2019 so that it reaches its historical average of about 70 percent by 2022. Most of the $47 billion cost of the extension would be automatically reduced by lower Medicaid and insurance subsidy spending on those who would end up covered by CHIP instead, leading to net costs of just over $8 billion. The legislation would also extend funding for Community Health Centers, the National Health Service Corp, as well as other temporary health spending, while providing $1 billion of increased Medicaid funding for Puerto Rico and the U.S. Virgin Islands. Added together, new spending in the package will total about $18.2 billion. Fortunately, the bill includes more than enough policies to offset the cost.

Budgetary Effect of House Health Care Bill

Policy Ten-Year Cost/Savings (-)
Extend CHIP authorization through 2022 $8.2 billion
Increase Puerto Rico/U.S. Virgin Islands Medicaid funding $1 billion
Extend Community Health Centers and National Health Service Corps funding $8.1 billion
Extend other health extenders $0.9 billion
Subtotal, Gross Cost $18.2 billion
Reallocate money from the Prevention and Public Health Fund -$8.9 billion
Reduce health exchange insurance grace period -$4.9 billion
Expand Medicaid third-party liability -$3.7 billion
Change income definition for lottery winnings -$0.6 billion
Re-allocate Medicaid DSH cuts -$0.2 billion
Subtotal, Gross Savings -$18.3 billion
Total -$0.1 billion

Source: Congressional Budget Office, Author's estimates

CBO's estimate of the bill shows that it would slightly reduce the deficit over ten years, and we estimate that it would provide larger deficit reduction in future decades.

The largest source of funding would come from re-allocating funds from the Prevention and Public Health Fund toward Community Health Centers. Under current law, the Fund will have the authority to spend $900 million in 2018 and 2019, $1 billion in 2020 and 2021, $1.5 billion in 2022, $1 billion in 2023, $1.7 billion in 2024 and $2 billion in 2025 and beyond. The bill would instead reduce the Fund to $900 million in 2018 and $600 million in 2019 before zeroing out funding for 2020-2026, then allowing spending to return to $2 billion in 2027. These reductions would save $8.9 billion over ten years.

The legislation would also shorten the period people are allowed to remain on a health insurance plan without paying premiums (from three months to one month), limit Medicaid eligibility for lottery winners who are wealthier than their monthly income suggests, and reverse some cuts to Medicaid Disproportionate Share Hospital (DSH) payments this year and next year in exchange for a haircut to payments in future years. The legislation also builds on an Obama-era policy to extend third-party liability for Medicaid to more services so that Medicaid is actually the payer of last resort for these services rather than the first. At the same time, it narrows the scope of what is considered a third party, but the policy as a whole still saves $3.7 billion.

In total, these policies would save $18.3 billion in a decade, enough to pay for the costs in the bill. In addition, since most of the savings are permanent but all of the costs are temporary, the bill would save increasing amounts over time. That means the legislation, while costing money in the first few years, would likely reduce deficits by $15-20 billion after two decades.

The legislation could become more fiscally responsible if the House adopts an amendment from Energy and Commerce Committee Chairman Greg Walden (R-OR) to replace $3.4 billion of temporary savings from the Prevention Fund with $5.8 billion of permanent savings from increasing Medicare means-tested premiums. Though Medicare beneficiaries typically pay about 25 percent of program costs for Parts B and D, higher-income people pay premiums in the range of 35-80 percent of costs. The policy would create a new 100 percent premium for those making over $500,000, meaning that they would pay a premium equal to per-person Part B and D costs. Not only would this swap save more than $2 billion over ten years, it would also save more over the longer term since the Medicare policy is permanent savings whereas the Prevention Fund cuts are temporary. We estimate that the swap would produce about $10 billion of additional savings in the second decade.

The health bill is a good example of what happens when lawmakers commit to fiscal responsibility. They have identified several policies they would like to enact and real offsets that would provide long-term deficit reduction. This is the model that Congress should follow to ensure they don't add to the debt. Whether a $1.5 trillion tax cut or a $20 billion spending increase, Congress must uphold the priniciple of paying for all new legislation so as not to make our unsustainable debt situation even worse.

Note: This blog has been updated to include a discussion of the Walden amendment to the bill.