Dispelling Confusion About New CBO Letter on Health Reform Law

May 12, 2010 at 4:05 pm

Has the Congressional Budget Office (CBO) just upped its cost estimate for the new health care law by $115 billion, as several media outlets are reporting? Not at all.

In March, when CBO estimated health reform’s effects on the deficit, it appropriately included all of the legislation’s impact on mandatory spending. (Mandatory spending, like Medicare and Medicaid, continues from year to year unless Congress passes new legislation to reduce it.)

CBO’s March estimate did not include the legislation’s impact on discretionary spending — the spending Congress provides each year in appropriation bills — because the legislation did not directly affect discretionary spending. Moreover, there’s no way CBO can estimate how the legislation might affect the future discretionary funding Congress will actually appropriate for any specific program or how that appropriation will affect total discretionary spending. (For an explanation of why CBO’s treatment of discretionary spending is necessary and appropriate, see this paper Jim Horney and I wrote on March 25.)

Instead, CBO in March provided a separate table showing the possible discretionary spending that could — contingent on future appropriations legislation — result from enactment of health reform. Yesterday’s letter from CBO simply updated those figures.

While the new figures are indeed larger than the March ones, the biggest single reason is that they include the cost of renewing the Indian Health Service (IHS), totaling $39 billion over ten years. (Many of the health reform law’s provisions continue existing discretionary programs rather than create new ones.) As CBO’s letter points out, that $39 billion is simply a projection of what the federal government is currently spending for the IHS; not a single dollar represents additional real spending.

In short, yesterday’s CBO letter didn’t provide much new information about the health reform law, which, as CBO has found, will reduce the deficit over the next decade and beyond.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio | Blog Archive | Research archive at CBPP.org

1 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Rui #

    If the more recent CBO estimates “include many items whose funding would be a continuation of recent funding levels for health-related programs or that were previously authorized and that PPACA would authorize for future years”, I would think that accounting for current expenditures for existing programs would be critical in comparing expenditures over time, especially since the new law calls for the continuation of such programs. So it also seems misleading to me that you are claiming that these few new figures do not change the calculus of the debate over the long-term fiscal impact of the health care bill. So should this or some other amount have already been factored into the claim that it would reduce the deficit in the long-term. Sounds a lot like off-balance-sheet accounting to me.

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