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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 file type icon accounted for in exactly the same way 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 file type icon reduce the deficit over the next decade and beyond.