Report No: 531
Date: 11/27/2000

OMB COST ESTIMATE
FOR PAY-AS-YOU-GO CALCULATIONS

1. LAW NUMBER: P.L.106-398 (H.R. 4205)
2. BILL TITLE: National Defense Authorization Act for Fiscal Year 2001
3. BILL PURPOSE: (1) Authorizes FY 2001 appropriations for Department of Defense (DOD) programs, (2) modifies military pay and benefits; (3) creates a new entitlement to provide lifetime health care for military retirees and provides pharmacy access to all Medicare-eligible retirees; (4) authorizes FY 2001 appropriations for Department of Energy (DOE) national security programs; (5) creates the Energy Employees Occupational Illness Compensation Program; and (6) makes other modifications to national security and related programs.
4. OMB ESTIMATE: P.L. 106-398 establishes two significant entitlement programs -- a military retiree healthcare entitlement and a program to compensate DOE employees who have developed specific illnesses as a result of their work in the Nation's nuclear weapons complex. OMB estimates that the military healthcare entitlement will cost $16.5 billion over the 2001-2005 period and the DOE workers' compensation will cost $1.7 billion over the five-year period. The law also authorizes members of the uniformed services to participate in the Thrift Savings Plan (TSP). OMB estimates that the revenue loss caused by deferred income tax payments will total $586 million over the five years. Various other direct spending provisions, including expanded use of Montgomery GI Bill education assistance for veterans and servicemembers, yield net costs of $113 million over the five years.

	(Fiscal years; in millions of dollars)
	2000	2001	2002	2003	2004	2005
Direct spending:
Military retiree healthcare.....	0	33	164	5,110	5,445	5,772
DOE compensation...............	0	338	551	430	230	198
Other.....................................	0	-12	29	31	72	-7
Receipts: Thrift Savings Plan....	0	-69	-109	-123	-136	-149
Net costs...............	0	428	853	5,694	5,883	6,112

5. CBO ESTIMATE:

	(Fiscal years; in millions of dollars)
	2000	2001	2002	2003	2004	2005
Direct spending:
Military retiree healthcare.....	0	23	150	5,703	6,183	6,679
DOE compensation...............	0	0	243	381	279	189
Other.....................................	0	-45	-80	5	50	65
Receipts: Thrift Savings Plan....	0	0	-47	-76	-99	-120
Net costs...............	0	-22	360	6,165	6,611	7,053

6. EXPLANATION OF DIFFERENCES BETWEEN OMB AND CBO ESTIMATES:

The largest difference between OMB and CBO scoring over the five years is for the military healthcare entitlement. OMB estimates that the new benefit increase will cost $8.6 billion in direct spending, while CBO estimates $11.1 billion or $2.5 billion higher cost than the OMB estimate. CBO estimates a higher cost due to different assumptions about the utilization rate, continued access to discounted pharmaceuticals, and the share of health spending DOD will shift to the mandatory program. Partially offsetting this, CBO assumes lower Medicare costs resulting from the increased use of TRICARE due to differences in the assumptions about enrollment growth and the increase in the use of Medicare covered services.

Most of the differences in FYs 2001 and 2002 result from the scoring of the DOE workers' compensation entitlement. OMB estimates that there will be a significant number of claims processed and paid in the first year, while CBO estimates no cost in the first year. OMB estimates higher costs in other years, because CBO estimates significantly lower eligible population.

7. CUMULATIVE EFFECT OF DIRECT SPENDING AND REVENUE LEGISLATION ENACTED TO DATE:

	(Fiscal years; in millions of dollars)
	2000	2001	2002	2003	2004	2005
Outlay effect..............	34	1,149	2,179	7,141	7,839	8,009
Receipt effect............	-8	-689	-808	-870	-922	-924
Net costs....................	42	1,838	2,987	8,011	8,761	8,933

NOTE: The cumulative effect of direct spending and revenue legislation enacted to date is currently estimated to result in an end-of-session sequester. The Administration looks forward to working with the Congress to ensure that an unintended sequester does not occur.

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