That loud sound you heard just a moment ago from Capitol Hill was the collective exhale of Democrats: Sen. Max Baucus's Finance Committee health care proposal won't add to the deficit over 10 years, according to the magical Congressional Budget Office. Read their score summary here: Baucus.pdf: In fact, it would reduce deficit projections by $81 billion dollars, costing a total of $829 billion. The bill wouldn't achieve universal coverage -- excluding illegal immigrants, it would leave about 16 million non-elderly Americans without health insurance.
How did the CBO arrive at a figure of $829 billion? The bill's combination of an excise tax on insurance plans with high premiums, the money that'll come from people paying premiums for their new insurance plans in the exchange mechanism, savings from cuts to Medicaid and Medicare and the tax impact that comes with the expansion in federally subsidized insurance. The bill provides subsidies to those earning between 100 and 400% of the poverty level.
Here's what the CBO says about the co-ops: they "had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments."
Baucus says he can get this bill to the floor. It's a bill that at least one Republican -- Sen. Olympia Snowe -- could vote for. And no Democrat -- or Republican -- can argue that, based on the shared reverence for the CBO source, health care will add to the deficit... even though, as the CBO admits, a projection is just a projection.
It would, however, add to the deficit over any time period of around 15 or 20 years or more. It's got a neat trick of not spending much until 2014 (and ramping up after that), but the taxes start before that. So from 2010 to 2014 it decreases the deficit; from 2015 to 2019 it increases the deficit (Source: page 3 of the linked PDF of the CBO letter). The tax revenue grows incredibly slowly after 2014, not even close to enough to pay for the increased spending. At that point the cuts to Medicaid and Medicare are supposed to kick in and are necessary to pay for the increased spending on other people.
So it saves money from 2010 to 2014 by imposing taxes but not providing benefits; from 2015 to 2019 it spends more money, and only manages to stay deficit neutral by slashing Medicare and Medicaid spending. I don't think that the Medicare and Medicaid cuts will happen (this Congress voted again, like all previous Congresses, to suspend automatic Medicare doctor payments cuts that would have happened otherwise).
So this bill absolutely will increase the deficit.