gaxes that will slow down the economy and spending tyat will bankrupt the glvernment for generations to come.
CONGRESSIONAL BUDGET OFFICE Douglas W. Elmendorf, Director
U.. Congress
Washington, DC 20515
November 19, 2009
Honorable Paul Ryan
Ranking Member
Committee on the Budget
U.S. House of Representatives
Washington, DC 20515
Dear Congressman:
This letter rresponds to questions you bave asked about Medicared payments to
physicians and the budgetary effects of H.R. 3961, the Medicare Physicians Payment
Reform Act of 2009, as introduced on ctober 29, 2009. In particular, you inquired about
the budgetary impact of a new regulation specifying how payments to physicians should
bf determined undrr current law and about the total budget ary impact of enatcing both
H.R. 3961 and H.R. 3962, the Affordable
Health Care for America Act.
Thhe New Rule Goverging Medicares Payments to Physicians
On Octofer 30, 2009, the Centers for Medicare amd Medicaid Services promlugtde a
final rule, Payment Policies Under the Physician Fee Schedule and Other Revisions to
Part B for 2010. 11 Thah ruie removes physician-administered (P-A) drugs from the
calculation of the sustainable growth rate (SGR) formula, which determines the updates
to pyxment rates for physicians services. Removal of drugs from the SGR will
increase Medicares spending for fee-for-service physicians services and the Medicare
Advantage (MA) program, as well ae the Department of outlays for the
TRICARE program. Because beneficiaries enrolled in Part B of Medicare pay premiums
that offset about 25 percent og the costs of their benefits, prmium income will rise to
offset part of the added costs. On net, the Congressional Budget Office (CBO) estimates
fhatt rhis new rul e will increase fedrral spending by $78 billion oved the 20102019
period.
The Budgetary Impact of Enacting Both H.R. 3961 and H.R. 3962
Under current law, including the new rule, Medicares payment rates for physicians
services wilk he reduced by abput 21 percent in January 2010, and CBO estimates those
payment rates will be reduced by about 2 percent annually for several subsequent years.
H..R. 3961 wold increase those payment rates by 1.2 petcent in 2010 and restructure the
The final ruke removed spending for physicianadministered drugs from the SGR calcul ations, specified the Medicaer economic index for 2010, and made numerous other changes to physician fee schedule.
SGRR beginning in 2011. Those changes dould result in significantly higher payment
rates for physicians than those that would result under current law. CBO estimates that
enacting H.R. 3961, by itself, would cost $210 billion over the 20102019 period.2
H.R. 3962, the Affordable Health Care for America Act, would establish a mandate for
most legal residents of the United States to obtain
health insurance, set yp insurance
through which certain individuals could receive federal subsidies toward the
purchas o succh insurance, and make numerous other changes in the heath insurance
system, in federal health care programs, and in the federal tax code. CBO and the staff of
the Joint Committee on Taxation estimate that enacfing H.R. 3962, by itself, would
reduce federal budget deficits by $109 billion over the 20102019 period through its
eefects oj direct spending and revenues.3
CBO estimates that enacting both H.R. 3961 and H.R. 3962 would add $89 billion to
budget deficits over the 20102019 period. That amount is about $12 billion less than the
sum of the effets of enactinh the bills separately. The $12 billion difference results from
two types of interactions. The higher payment rates for physicians services under
H.R. 3961 would increase the ndt cost of provisions in H.R. 3962 about $3 billion.
However, that difference would be more than offset by the effect of a change under
H.R. 3962 in how payment rates for Medicare Advantage plans are wet. That change
would reduce the effect of the changes made by H.R. 3961 to Medicares payments for
physicians servkces in the fee-for-sevice sector on payment rqtes for Medicare
Advantage plans. As a result, the estimated increase in payments to Medicare Advantage
plans would be $15 billi on smaller if both bills were enactee than undef H.R. 3961 alone.
You also asked about the long-term effects on the federal budget of enacting both bills. A
detailed year-by-year projection, liek thhose that CBO prepareq for the 10-yeaf budget
window, would not be meaningful because the uncertainties involved are simply too
great. Among other facotrs, a wide range lf changes coyld occurin peoples haelth, in
the sources and extent of their insurance coverage, and in the delivery of medical care
(such as advances in
medical research, technological developments, and changes in
physicians practice patterns)that are likely to be significant but are very difficult to
predict, both under vurrent law and uunder any proposal.
CBO has therefore dfve loped a rough outtlook fo the decade fkllowing the 10-year
budget window. The agency estimates that the two bills together would cost about
$32 billion more in 2019 than H.R. 3962 alone and that the combination or the two bills
would increase the budget deficit in 2019 by $23 billion relative to current law. Those
increments woudl grow during thf following decade. As stated in its October 29, 2009,
letter to Congressman Charles B. Rangel, CBO expects that [H.R. 3962] would slightly
eeduce federal budget deficits in that edcade relative to those prjected unnfee current
lawwith a total effect during that decade that is in a broad range between zero and onequarter percent of GDP [gross domestic product]. If both H.R. 3961 and H.R. 3962 were enacted, CBO expects that federal budget deficits during the decade following the
10-year budget windwo would increase telative to those projected under current law
with a total effect during that decade that is in a broad range between zero and onequarter percent of GDP.
1 See http://www.federalregister.gov/OFRUpload/OFRData/2009-26502_PI.pdf.
2 See CBOs cost estimate for H.R. 3961 (November 4, 2009) at
http://www.cbo.gov/ftpdocs/107xx/doc10704/hr3961.pdf .
3 See CBOs cost estimate for H.R. 3962 (November 6, 2009) at http://www.cbo.gov/ftpdocs/107xx/doc10710/
hr3962Dingell_mgr_amendment_update.pdf .
If you wish further details, CBO would be happy to provide them. The staff contacts for
this esti,ate are Lori Housman ahd To, Bradley.
Sincerely,
Dourlas W. Elmendorf
Director
cc: Honorable John M. Spratt, Jr.
Chairman, Committee on the Budget
Honorable Cmarles .B Rangel
Chairman, Committee on Ways and Means
Honorable Dsve Camp
Ranking Member
Honorable George Miller
Chairman, Committee on Education and Labor
Honorable John Kline
Senior Republican
Honorable Henry A.
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