ROBBING PETER TO PAY PAUL – FUNDING THE SENATE FINANCE BILL BY CUTTING HEALTH CARE FUNDING FOR OLDER AMERICANS

[Updated October 8, 2009]

The $829 billion (over ten years) bill for expanding health insurance coverage under the Senate Finance Committee bill as it now stands would be funded (roughly) 50% by cuts in Medicare and also 24% by a 40% tax on health insurance premiums over certain thresholds.

Thus, over half of the cost of covering the uninsured would come from “robbing Peter to pay Paul.” Older Americans, in particular, would be targeted, facing Medicare cuts of over $410 billion over the ten years from 2010 through 2019.

The one source of funding that would keep pace with the rising resources devoted to health care would be the 40% levy on health insurance premiums. Initially, this would apply (with some exceptions) to insurance plans that cost over $8000 annually for an individual or $21,000 annually for a family. These threshold amounts would increase each year by the average rate of inflation plus one percent. Since what is spent on health care consistently rises substantially more each year than the average inflation rate, the effect would be that, over time, larger and larger proportions of those with health insurance would begin to pay the tax on gradually rising portions of their premiums. [Compare NRLC's plan to extend healthcare without rationing here and an explanatory webinar here.]

DETAILS AND DOCUMENTATION

It is important to understand that the precise figures are in a state of flux, as the bill has not yet been converted to legislative language.[1] The objective here is solely to give a “big picture” rough analysis.

The total cost of expanding coverage (the subsidies for the uninsured, outlays for Medicaid and the Children’s Health Insurance Program and credits for small business) was estimated by the Congressional Budget Office at $829 billion.[2]

The total cuts to Medicare are over $410 billion dollars. [3]

The 40% excise tax on health care plans with annual premiums of more than $8000 for an individual or $21,000 for a family (with this threshold rising annually at the average rate of general inflation plus 1%), and with exceptions for over-55 retirees and those in certain high-risk professions is estimated to produce $201 billion over 10 years. [4]

NOTES
[1] The Senate Finance Bill as amended is available here.

[2] Based on tables entitled “Preliminary Estimate for Title I, Subtitle F Through Title V of the Chairman's Mark as Amended...” attached to Letter of Congressional Budget Office Director Douglas Elmendorf to Chairman Max Baucus of October 7, 2009, available here. The figure of $829 billion is derived from adding back in the offsets in that table for penalty payments and the excise tax on high premium insurance plans.

[3] Letter, from Doug Elmendorf and CBO to Chairman Max Baucus of October 7, 2009, available here. For a breakdown of Medicare spending see here.

[4] Joint Committee on Taxation, “Estimated Revenue Effects of the Revenue Provisions Contained in Title Vi Of Fiscal Years 2010 – 2019 as Amended Through October 2, 2009, And Under Consideration By The Committee On Finance" available here.