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Why the CBO score on House health-care bill is so critical to markets

  • The CBO's scoring of the House health-care bill could determine whether Republicans can keep their pledge to replace Obamacare this year, analysts say.
  • Markets are focused on this, because it could impact the bond market and dollar due to the close ties between progress on health care and tax reform.
  • The health-care sector could be impacted by whether the House bill stands or it needs to pass another bill.

The Congressional Budget Office's scoring of the House health-care bill could determine whether Republicans can keep their pledge to replace Obamacare this year, analysts say.

Markets are focused on this late Wednesday event, because the outcome could potentially rock the entire health-care sector, but also could impact the bond market and dollar, because of the close ties between progress on health care and tax reform.

The nonpartisan CBO is "scoring" the bill, or calculating its cost to the government, as well as how many people would actually have coverage. The first version of the House health-care bill showed 24 million fewer people would have health care than under Obamacare, than under the new American Health Care Act.

"If they say more people are going to lose their insurance than the previous one, that makes it hard to pass. If they say it doesn't save money, it may mean the House has to pass a new one," said Dan Clifton, head of policy research at Strategas.

The CBO's report will be important on many levels, since it could determine whether the bill the House already passed could be voted on by the Senate. Congress is trying to replace Obamacare through budget reconciliation, meaning it would be subject to a simple majority vote and Democrats could not block it in the Senate. In order to be part of budget reconciliation, the health-care bill can't show a deficit outside of a 10-year period.

If the bill doesn't show sufficient cost savings, it would be problematic. "That means the House would have to redo the bill. The Senate can't move without the House. If the House has to go back and redo this bill, it's very unlikely they'll have health care at all," Clifton said.

The White House and congressional leaders have said health care would be dealt with ahead of tax reform, but the House struggled to pass its bill by a thin majority, after failing to vote on a first version.

"Regardless, the CBO is seen as the final arbiter for members of Congress. If the score shows that the number of uninsured from AHCA will still be too high, the Senate may drop the health-care reform effort and could transfer the reconciliation instruction to tax reform," Clifton noted.

But for hospitals and care providers, a tough score by the CBO might be a positive. "If the House has to go back to the drawing board, some service providers may rally because they're afraid of losing patients," said Peter Boockvar, chief market analyst at The Lindsey Group.

Even if the bill does get a better score, Greg Valliere, chief global strategist at Horizon Investment, said it would never pass the Senate, which is drafting its own bill.

"Right now, both sides are pretty well dug in. I think this would never make it through the Senate," said Valliere. "The only thing the market cares about is the tax bill. There are some signs of movement there." Health care has been set as a priority ahead of the tax bill, but Valliere said House Ways and Means Committee Chairman Kevin Brady indicated he has a blueprint ready to discuss on tax reform after the Memorial Day holiday.

The health-care bill scoring has been important for markets since if the legislation fails to get a good score and requires a House vote on a new bill, traders will take that as another delay on the road to tax reform.

"It gums up the works. It's another distraction and it's another reminder of things that are not getting done," said Aaron Kohli, director, fixed income strategy at BMO.