Cost and Coverage Impacts of the President’s Health Care Reform Proposal and a Congressional Tax Credit Proposal. Single-Year Estimates of Federal Costs

05/19/2008

President’s ProposalThe total amount of the federal tax revenue lost due to the new deduction would be $294.6 billion, including income and Social Security taxes (Figure 16).  These revenue losses would be largely offset by about $229.9 billion by requiring workers to count the value of their ESI coverage as taxable income.  After taking into account the redirected DSH funding, the net costs of the Affordable Choices program to the federal government would be $6.7 billion.  There would also be additional federal Medicaid spending of $2.3 billion due to increased enrollment in Medicaid or SCHIP of 1.1 million people.  Thus, the President’s proposal would increase the Federal deficit by about $73.8 billion.17

Figure 15: Summary of Public Program Costs Under the President’s Proposal in 2009
Public Program Costs (in $ billions)
    Federal State Total
Tax Deduction for Private Insurance   $294.6 $34.3 $328.9
Federal Income Tax Deduction $173.70      
Federal Payroll Tax Deduction $120.90      
State Income Tax Deduction $34.30      

 

Affordable Choices Health Insurance Program (Affordable Choices)
Figure 15: Summary of Public Program Costs Under the President’s Proposal in 2009(con't)
DSH funding redirected to Affordable Choices at current Federal matching rates a/ $4.6 $3.5 $8.1
Remaining Affordable Choices costs at enhanced Federal matching rates $6.7 $2.9 $9.6
Total Affordable Choices Spending $11.3 $6.4 $17.7
Savings to DSH Program b/ ($4.6) ($3.5) ($8.1)
Net Spending for Affordable Choices $6.7 $2.9 $9.6

 

Current Medicaid/SCHIP and other State Health Programs
Figure 15: Summary of Public Program Costs Under the President’s Proposal in 2009(con't)
Current Medicaid/SCHIP $2.3 $1.8 $4.1
Other State and Local Government Health Programs c/ $0.0 ($3.3) ($3.3)

 

Eliminate ESI Tax Exclusion
Figure 15: Summary of Public Program Costs Under the President’s Proposal in 2009(con't)
Eliminate ESI Tax Exclusion     ($229.9) ($25.4) ($255.3)
ESI Tax Exclusion Federal income tax $130.20      
Federal payroll tax $86.70      
State income tax $25.40      
Flexible Spending Accounts $5.00      
Health Care Tax Deduction $8.00      
Net Program Costs/Savings     $73.8 $10.3 $84.0

a/ Assumes states use half of their federal DSH funding for expanding coverage under the Affordable Choices Health Insurance Program. States are required to match these funds at the current Medicaid matching rates. (Data provided by CMS).
b/ Actual amount of state savings would vary depending on the method currently used by the state to fund DSH payments. The state’s share of DSH matching funds could consist of general revenues, provider taxes, intergovernmental transfers and certified public expenditures.
c/ Includes savings to state and local government health programs as users become covered by private insurance. Some portion of these savings has been counted as State’s share of DSH program savings.

Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).


Congressional Flat Tax ProposalThe total amount of the federal tax revenue lost due to the new tax credit would be $265.0 billion, including income and Social Security taxes (Figure 16).  As with the President’s proposal, these revenue losses would be largely offset by about $229.9 billion by requiring workers to count the value of their ESI coverage as taxable income.  There is also additional federal Medicaid spending of $1.0 billion due to increased enrollment in Medicaid or SCHIP of 0.4 million.  Thus, the tax credit proposal would increase the Federal deficit by about $36.1 billion.18

Figure 16: Summary of Public Program Costs Under the S.1019 Proposal in 2009
Public Program Costs (in $ billions)
      Federal State Total
      $265.0 $0.0 $265.0
Tax Credits Tax Credit used for ESI $202.7      
Tax Credit used for Non-group $62.3      
Current Medicaid/SCHIP     $1.0 $0.8 $1.8
Other State Programs     $0.0 ($5.1) ($5.1)
Eliminate ESI Tax Exclusion     ($229.9) ($25.4) ($255.3)
ESI Tax Exclusion Federal income tax $130.2      
Federal payroll tax $86.7      
State income tax $25.4      
Flexible Spending Accounts $5.0      
Health Care Tax Deduction $8.0      
Total     $36.1 ($29.7) $6.4
Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

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