The Health Care Reserve Fund: A Historic Commitment to Reform

As I have said more than a few times before (even on this blog) reducing health care costs is the key to the country’s fiscal future and also to providing relief to American families from rising health care bills. To that end, the Administration is committed to reforming health care this year and to doing so in a deficit-neutral manner. 

We began that process in February in the budget overview, which included a $634 billion health care reserve fund -- a substantial down payment toward health care reform. On Monday, when we release the Summary Tables and Analytical Perspectives of the Budget, you will see that the full Budget does exactly the same thing and includes $635 billion in a health care reserve fund.

As in the February overview, about half of the health care reserve fund in the full Budget comes from savings in Medicare and Medicaid that would improve the health care system’s efficiency and quality.  There is a change (the "$635 billion" in the above paragraph is not a typo).  In the time since we released the February overview, the health care reforms in the reserve fund have been re-estimated to save about $7 billion less over the next 10 years, while the limitation on itemized deductions has been re-estimated to save about $51 billion less over this period.  We closed this gap by dedicating some other tax enforcement measures and loophole closers totaling $60 billion. This then brings the reserve fund in the full Budget to almost exactly the same total as before.

How do we do it?

First, we improve tax compliance and eliminate unjustified tax breaks for narrow interest groups. For instance, the Budget proposes to:
  • Expand information reporting that will help the IRS catch tax cheats. The expanded information reporting is expected to raise more than $10 billion over the next 10 years, by allowing the IRS to better enforce existing tax law. 
  • Target valuation games played by those facing estate and gift taxes that allow them to undervalue transferred property, raising another $24 billion over the next 10 years.
  • Immediately clamp down on a tax loophole that is giving an unintended, multibillion dollar windfall to paper companies, saving more than $1 billion this year and next. 
Second, as in the February overview, the Budget would also limit the tax rate at which families making more than $250,000 can take itemized deductions to a maximum of 28 percent. This is a matter of fairness. If you’re a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150.  If you are Warren Buffet or Bill Gates and make that same donation, you currently get a $350 deduction—more than twice the break as the teacher. Limiting itemized deductions for high-income Americans would help restore balance to the tax code, and any effect on charitable giving is likely to be swamped by other Administration policies. The best way to boost charitable giving is to jumpstart the economy and raise incomes—and the purpose of the Recovery Act enacted in the Administration’s first month in office was to do precisely that. The limitation on itemized deductions is now expected to raise about $267 billion over the next 10 years, which we will devote entirely to health care reform.  All together, these policies would raise a total of $635 billion to be devoted to health care reform—almost exactly the same total amount as in the February overview.

It is true—more savings than this will be needed to pay for comprehensive health care reform in its entirety. But I believe that the reserve fund, in itself, represents a historic commitment, and I look forward to working with Congress to bring about—and pay for—fundamental health care reform this year

Your Federal Tax Receipt