Democrats’ Health Care Plan Would Cost at Least $1 Trillion Over Ten Years, CBO Says

By Fred Lucas | July 15, 2009 | 9:48 AM EDT

( – The health care reform plan proposed by House Democrats on Tuesday will add more than $1 trillion to the national deficit over 10 years, according to an estimate by the Congressional Budget Office released Tuesday.
The CBO report came the same day that House Speaker Nancy Pelosi (D-Calif.) and other House Democratic House leaders released their plan to establish a government-run health insurance plan to compete with the private sector.
Under the Democrats’ plan – called America’s Affordable Health Choices Act -- employers must offer health coverage to their workers or face fines; and individuals would be required to participate in a health insurance plan.
Republicans and other critics of the proposal say it is too costly. They also warn that establishing government-run health insurance – the so-called “public” option -- will crowd out private insurers, leading to fewer choices for consumers.
The CBO report states that its cost estimates are preliminary and not yet comprehensive, as administrative and other costs are not yet projected.
Those additional unaccounted-for costs might not make a substantial difference, however, said CBO Director Douglas Elmendorf in a letter to House Ways and Means Committee chairman Rep. Charles Rangel (D-N.Y.).
Late last week, Rangel introduced legislation calling for a $540-billion tax hike to pay for the health plan that President Barack Obama insists will be “deficit neutral.” (See previous story)
According to the CBO analysis, the Democrats’ proposal “would result in a net increase in federal budget deficits of $1,042 billion over the 2010–2019 period.”
“The number of nonelderly people without health insurance would be reduced by about 37 million, leaving about 17 million nonelderly residents uninsured (nearly half of whom would be unauthorized immigrants),” the analysis noted. Nearly all Americans 65 and older receive coverage through Medicare.
As the CBO noted, the Democrats’ proposal “would also impose a ‘play-or-pay’ requirement on employers, who would either have to offer qualifying insurance to their employees and contribute a substantial share toward the premiums, or pay a fee to the federal government that would generally equal 8 percent of their payroll. Small employers (those with an annual payroll of less than $250,000) would be exempt from those requirements.”
“Firms with relatively few employees and relatively low average wages would also be eligible for tax credits to cover up to half of their contributions toward health insurance premiums,” the CBO said.
The Democrats’ legislation also would require individuals to purchase health insurance.
“The federal government would establish insurance exchanges throughout the country and, more importantly, would subsidize the purchase of health insurance through those exchanges for individuals and families with income between 133 percent and 400 percent of the federal poverty level, also starting in 2013,” the analysis said.
Also in 2013, legal residents would be required to obtain health insurance. The bill would impose a financial penalty on most people refuse to do so (the size of the penalty would generally vary with their income), the CBO noted.
The analysis states that the much-touted public option would largely pay Medicare rates for hospital and other medical goods and services.