CBO says Baucus bill cuts deficit by increasing taxes and cutting Medicare/Medicaid spending

According to the Congressional Budget Office (CBO), Sen. Max Baucus’s proposed bill would reduce the deficit by $49 billion from 2010 to 2019. The projected net cost is $500 billion over 10 years.

According to the CBO, the savings are “partly offset by $215 billion in revenues from the excise tax on high-premium insurance plans…and $59 billion in revenues from other sources.” Additional savings would come from “other tax provisions” that would “increase federal revenues by $139 billion over the same period.” The CBO does not define “other sources” or “other tax provisions”, but does state that the $139 billion figure results from $134 billion in “additional revenues” and $5 billion from certain Medicare and Medicaid provisions.

These estimates combine for a total projected savings of $413 billion from 2010 – 2019. So where does the remaining savings come from?

Medicare and Medicaid.

According to the CBO report, the largest individual budget savings would come from Medicare cuts. A hefty$353 billion in these primary cuts alone (although more medicare cuts are projected in the report):

Permanent reductions in the annual updates to Medicare’s payment rates for most services in the fee-for-service sector…saving $182 billion over the 2010–2019 period.

Setting payment rates in the Medicare Advantage program based on the average of the bids submitted by Medicare Advantage plans…saving $123 billion over the 2010–2019 period.

Reducing Medicare and Medicaid payments to hospitals that serve a large number of low-income patients…saving $48 billion over the 2010-2019 period.

In addition to the cuts, the CBO states that the Baucus proposal would set up a Medicare Commission that would be required to recommend changes to the program to “limit the rate of growth in that program’s spending.” In addition to the minimum $353 billion in medicare cuts, future spending would be limited by a “Commission” as well.

The bottom line is that Baucus’s proposal will cut the deficit by $49 billion by generating $413 billion in revenue from higher premiums, other taxes, additional revenues and $500 billion in savings by cutting Medicare and Medicaid spending. Fraud, Waste, and Abuse will result in a estimated savings of only $2 billion over the 10 year period.

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