CBO Sees No Net Federal Cost Savings in Dem Health Plans - The Note

CBO Sees No Net Federal Cost Savings in Dem Health Plans - The Note
Here's a blow to President Obama and Democrats pressing health care reform.

One of the main arguments made by the President and others for investing in health reform now is that it will save the federal government money in the long run by containing costs.

Turns out that may not be the case, according to Doug Elmendorf, director of the nonpartisan Congressional Budget Office.

Answering questions from Democrat Kent Conrad of North Dakota at a hearing of the Senate Budget Committee today, Elmendorf said CBO does not see health care cost savings in either of the partisan Democratic bills currently in Congress.


Conrad: Dr. Elmendorf, I am going to really put you on the spot because we are in the middle of this health care debate, but it is critically important that we get this right. Everyone has said, virtually everyone, that bending the cost curve over time is critically important and one of the key goals of this entire effort. From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?

Elmendorf: No, Mr. Chairman. In the legislation that has been reported we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs.

Conrad: So the cost curve in your judgement is being bent, but it is being bent the wrong way. Is that correct?

Elmendorf: The way I would put it is that the curve is being raised, so there is a justifiable focus on growth rates because of course it is the compounding of growth rates faster than the economy that leads to these unsustainable paths. But it is very hard to look out over a very long term and say very accurate things about growth rates. So most health experts that we talk with focus particularly on what is happening over the next 10 or 20 years, still a pretty long time period for projections, but focus on the next 10 or 20 years and look at whether efforts are being made that are bringing costs down or pushing costs up over that period.

As we wrote in our letter to you and Senator Gregg, the creation of a new subsidy for health insurance, which is a critical part of expanding health insurance coverage in our judgement, would by itself increase the federal responsibility for health care that raises federal spending on health care. It raises the amount of activity that is growing at this unsustainable rate and to offset that there has to be very substantial reductions in other parts of the federal commitment to health care, either on the tax revenue side through changes in the tax exclusion or on the spending side through reforms in Medicare and Medicaid. Certainly reforms of that sort are included in some of the packages, and we are still analyzing the reforms in the House package. Legislation was only released as you know two days ago. But changes we have looked at so far do not represent the fundamental change on the order of magnitude that would be necessary to offset the direct increase in federal health costs from the insurance coverage proposals.

Conrad: And what about the Finance Committee package, as it stands?

Elmendorf: I can’t speak to that Mr. Chairman. We have been working with the Finance Committee and the staff for a number of months on proposals that they have been addressing. But our consultations with them have been confidential because they have not yet released the legislation, and I don’t want to speak publicly about that.

Conrad: All right. In terms of those things that are public from other plans, what are the things that are missing that in your judgement prevent a bending of the cost curve in the right way?

Elmendorf: Bending the cost curve is difficult. As we said in our letter to you, there is a widespread consensus, and you quoted some of this, that a significant share of health spending is not contributing to health. But rooting out that spending without taking away spending that is beneficial to health is not straightforward.

Again, the way I think experts would put it – the money is out there, but it is not going to walk in the government’s door by itself. And devising the legislative strategies and the regulatory changes that would generate these changes is not straight forward. But the directions that have widespread support among health analysts include changing the preferential tax treatment of health insurance. We have a subsidy for larger health insurance policies in our tax code, and that like other subsidies encourages more of that activity. Reducing that subsidy would reduce that. And on the other side, changing the way that Medicare pays providers in an effort to encourage a focus on cost effectiveness in health care and not encourage, as a fee for service system tends to, for the delivery of additional services because bills for that will be paid.

UPDATE: The word "net" was added to the headline of this posting to more accurately reflect the CBO's position.

Questions about this exchange have followed Elmendorf to the House Ways and Means Committee, where he clarified a bit, according to ABC's Lisa Chinn.

Elmendorf told members of the committee that his answer to Conrad shows only that the bill "adds to federal health spending, and that amount is difficult to offset."

In other words, it's not that the health reform bills do not lead to savings for the federal government -- just that those savings may not offset the added expense of subsidizing insurance for many more Americans.