The cost of healthcare reform

Among the most contentious issues in the national healthcare debate is how to pay for it. President Obama wants legislation that is “deficit-neutral over the next decade.” Here are the basics of what a healthcare overhaul would cost and how the bill could get paid:

How much are we spending now?

Total spending on healthcare in the U.S. will top $2.5 trillion this year, with nearly half coming from the government for Medicare, Medicaid and other public programs, according to the Centers for Medicare and Medicaid Services. That’s about one-sixth of the total U.S. economy. With healthcare costs rising faster than inflation, the country is expected to spend more than $30 trillion on healthcare over the next decade if nothing changes.

How much is it going to cost to overhaul the system?

That’s unclear, but it probably will cost more than $1 trillion over the next decade. The most expensive part of the plans being debated on Capitol Hill is expanding coverage to tens of millions of people who don’t have insurance. Congressional Democrats hope to do that by expanding the existing Medicaid program for the country’s poorest residents and offering subsidies to millions of others to help them buy private insurance or get into a new government plan.

In the Senate, a bill developed by the health committee would spend nearly $780 billion over the next decade to expand coverage, not including fees and penalties that could help offset some of that cost, according to the nonpartisan Congressional Budget Office. The bill written by senior House Democrats would spend $1.26 trillion to expand coverage before accounting for the fees and penalties.

Both bills would spend tens of billions of dollars more to boost prevention, expand prescription drug coverage for seniors, head off cuts to what Medicare pays doctors and finance other healthcare initiatives.

How can the country afford that?

Part of the bill would be paid by people and companies that don’t abide by new mandates that would require individuals to get coverage and require medium-sized and large businesses to provide health benefits to their employees. The CBO estimated that the Senate health committee bill would generate about $88 billion in such penalties over the next decade. The House bill would produce about $192 billion. The House legislation also would offset the cost of the bill with a series of changes to the way the federal Medicare program for senior citizens pays for services.

How would that work?

The House bill would cut payments to private insurers that contract with the federal government to provide insurance to about 10 million seniors on Medicare through the Medicare Advantage program. That would generate an additional $162 billion in savings. The bill also would cut about $200 billion in Medicare payments to hospitals, nursing homes and other providers by adjusting the formulas that the program uses to pay these providers.

Will that be enough?

Not quite. House Democrats have been forced to look outside the healthcare system for more money. They settled on a new graduated surtax on the wealthiest taxpayers. Under the legislation, single people with adjusted gross incomes between $280,000 and $400,000 a year would pay a 1% surtax on income above the $280,000 threshold. Couples making between $350,000 and $500,000 a year would also pay the 1% surtax.

Individuals making between $400,000 and $800,000 a year would pay a 1.5% surtax, as would couples making between $500,000 and $1 million. And individuals making more than $800,000 a year and couples making more than $1 million a year would pay a 5.4% surtax. That is expected to generate about $544 billion over the next decade.

What about the Senate bill?

The Senate health committee does not have jurisdiction over Medicare or taxation, so its bill does not contain many revenue provisions. But the Senate Finance Committee, which is still working on legislation, is supposed to produce a bill next month that is expected to include Medicare cuts and other provisions to help pay for the healthcare overhaul.

Will the healthcare overhaul add to the deficit or not?

We won’t know about the Senate proposal until the finance committee completes its work. But it looks like the House has some work to do. According to the CBO, the House bill would put the federal government $239 billion deeper in the red after 10 years, largely because of a provision to avert a major cut in what Medicare pays doctors. Democrats have pledged to find other money to offset that cost.

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noam.levey@latimes.com