Federal Health Spending Under Reid Bill Is Double What He Claims
Actually $1.6 Trillion, Not $848 Billion

Media Inquiries: Véronique Rodman
vrodman@aei.org 202.862.4871

FOR IMMEDIATE RELEASE: November 20, 2009

Estimate Assumes Unrealistic Cuts to Medicare and Medicaid and Ignores Hundreds of Billions in Additional Spending Says AEI Budget Expert Joseph Antos

Senate majority leader Harry Reid (D-Nevada) has produced a health reform bill that would substantially increase the federal commitment to health spending warns former CBO official Joseph Antos, a health policy and budget expert.

It is widely believed that Senator Reid's bill will cost $848 billion over the next ten years. That is incorrect, points out AEI's Antos. Under the proposal, the federal government will spend additional sums for long-term care, payments to the public insurance plan, and other initiatives. Moreover, the bill includes hundreds of billions of dollars in Medicare and Medicaid savings that will never be collected. Antos explains that the Reid bill is likely to cost $1.6 trillion over the next decade, and substantially more than that in the future.

Key points:

  • The total amount of new federal health spending in the bill needs to be recognized, not only the cost of expanding health insurance coverage. Additional spending in the Reid bill raises the cost to $1.2 trillion through 2019. That figure includes the cost of increased spending for long-term care insurance, subsidies to the health insurance exchanges, payments to the public insurance plan, and new spending in Medicare and Medicaid.

  • The CBO estimate assumes that Congress will cut Medicare payments to physicians by $245 billion over the next decade. The cuts will never happen. Those cuts, strongly opposed by the American Medical Association, are required under the "sustainable growth rate" (SGR) formula. In all but one year, Congress has overridden fee cuts required by the SGR. Reid's bill rolls back the 21 percent cut scheduled for January 2010. Future Congresses will undoubtedly do the same.

  • The Reid bill includes at least an additional $150 billion cut in payments to Medicare and Medicaid providers that will never be collected. There are $470 billion in Medicare and Medicaid cuts in the bill. However, across-the-board cuts in Medicare payment to hospitals, home health agencies, skilled nursing facilities, and other providers will be every bit as difficult to enforce as the physician fee cuts. Political pressures in future years could cut those savings by a third.

  • Accounting for potentially $400 billion in lost savings in payments to physicians and other providers, the Reid proposal increases federal health spending by $1.6 trillion over the next decade.

  • The Reid bill will likely increase the deficit by $270 billion over the next ten years. CBO estimates that the proposal will reduce the federal budget deficit by $130 billion through 2019. But that assumes more savings in Medicare and Medicaid than is plausible given Congress's track record. The additional $400 billion in extra federal health spending in those programs means higher deficits that will continue to grow well into the future.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI. He is also a commissioner of the Maryland Health Services Cost Review Commission, and a health adviser to the Congressional Budget Office. Before joining AEI, Mr. Antos was Assistant Director for Health and Human Resources at the Congressional Budget Office.

Mr. Antos is available for interviews and can be reached at jantos@aei.org or through his research assistant wistar.wilson@aei.org or 202.862.4876. For additional media inquiries, please contact Véronique Rodman at vrodman@aei.org or 202.862.4871.

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