The Congressional Budget Office (CBO) has released two comprehensive papers detailing the policy and
financial options for health care reform: Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care.I can’t overestimate the importance of these documents to health care reform. I recently did a post as sort of an open letter to the CBO: To the Congressional Budget Office: Please Keep Playing it Straight!After reading these two reports, totaling more than 400 pages of some of the most valuable health policy analysis I have ever seen, I now know that I had no reason to worry that the CBO would just tell the politicians what they wanted to hear.Any Congressional health care reform proposal will need to be “scored” by the CBO and, by preempting the coming proposals with this report, the career CBO health care experts
have now made it very clear they will not be an easy touch. Reformers
are going to have to play the game on the up and up—show real savings
or find the money elsewhere. CBO Director and incoming Obama Budget Director, Peter Orszag, also deserves a lot of credit for supporting his staff and issuing this report.It is also clear that, whoever the Congressional Democratic leadership appoints to succeed Orszag, a marker is down. The CBO is
on the record about what the likely reform options will cost before
anyone had a chance to bring political pressure to bear. And, that just
might have been intentional.The work contains an inventory of about all of the health care reform options being discussed complete with a thorough cost/benefit analysis detailing their impact on federal
spending. There would certainly be impact on private spending from many
of these options but this at least gives us a relative cost index to
compare the many health care reform ideas. This is also a financial report and did not attempt to measure quality improvements.
Taken together these two documents make a number of critical points:
- There are no one, two, or even ten silver bullets.
There are literally dozens of steps that will likely have to be taken
in order to achieve the savings necessary to make our system more cost
and quality effective.
- The politically easy stuff won’t get it done. Democrats and
Republicans have said that things like prevention,>wellness, and
wider use of health information technology
can free-up the savings we need to make our system affordable even
while we dramatically expand the number of citizens covered. But the
CBO confirms that these less politically problematic “ cost containment
lite” proposals won’t be enough: “…approaches—such as the wider
adoption of health information technology or greater use of preventive
medical care—could improve people’s health but would probably generate
either modest reductions in the overall costs of health care or
increases in such spending within a 10-year budgetary window.”
- Really controlling costs will be very hard and will require some
courageous and politically problematic actions: “ Those problems cannot
be solved without making major changes in the financing or provision of
health insurance and health care. In considering such changes,
policymakers face difficult trade-offs between the objectives of
expanding insurance coverage and >controlling both federal spending
and total costs for health care.”
- Changing what we pay will have far more potential to change the system’s costs than changing how we pay.
The >CBO’s work provides a detailed shopping list of policy
options complete with assumptions and an analysis of what the various
steps could cost or save the federal budget.
you read through the reports it becomes clear that there are things we
can do that will help but really be a drop in the huge health care
bucket. There are other things that we can do that would have a really
dramatic impact on federal health care spending—and they tend to be the
most politically problematic.
For example, The Baucus Health Plan makes a big deal about saving
money from waste, fraud, and abuse.” But such efforts are estimated by
the CBO to save a relatively inconsequential $500 million over ten
years. Using pay-for-performance systems, the health care fix de jour,
yields only single digit gains while reducing Medicare physician
payments in line with productivity gains would save a whopping $201
billion over ten years.
Rebasing the Medicare physician payments using the Medicare
Economic Index (MEI) would cost a budget busting $556 billion over the
next ten years and "equalizing" the private Medicare Advantage
payments—the favored method to pay for a fix—would only save $157
billion over the same period.
Many of these proposals save a great deal of federal spending
because they shift costs to the private sector—for example a “pay or
play” large employer mandate would save the government $48 billion but
would certainly cost the private employer community a great deal more.
is a partial list to give you a sense for the trade-offs. Note in
particular the items, or categories, that make a big or small
difference compared to others. The estimates apply to federal spending
and the cumulative impact the particular proposal would have on the
deficit over ten years–between 2010 and 2019.
The reports also detail the many advantages and disadvantages to do these things not directly reflected by the budget estimates.
I offer this partial
list from the 115 options presented as a quick opportunity to compare
many of the most mentioned policy options and other options the CBO
has found will have the biggest impact. You really need to read the
document and the assumptions that go with these estimates to fully
appreciate the analysis.
Change the Health Insurance System
- Foster the Formation of Association Health Plans – Adds $220 million to the deficit by 2019.
- Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State – Reduces the deficit by $7.4 billion by 2019.
- Impose a “Pay-or-Play” Requirement on Only Large Employers – Reduces the deficit by $48 billion by 2019.
a National High-Risk-Pool Program – Fully subsidizing all state’s to
enable them to cap high risk pool premiums at 150% of the market would
add $16 billion to the deficit by 2019.
- Establish a National
Reinsurance Program to Provide Subsidies to Insurers and Firms for
Privately Insured Individuals – Enacting a program to absorb 75% of the
cost of high cost claims would add $752 billion to the deficit by 2019.
a Voucher Program to Expand Health Insurance Coverage – Providing
vouchers for the uninsured with incomes below 250% of poverty with a
cap of $1,500 for individuals and $3,000 for families would add $65
billion to the deficit by 2019.
- Require States to Use Community Rating for Small-Group Health Insurance Premiums – Reduces the deficit by $5 billion by 2019.
Medical Malpractice Reform
- Limit Awards from Medical Malpractice Torts – Reduces the deficit by $5.6 billion by 2019.
Change the Tax System
the Tax Exclusion for Employment-Based Health Insurance and the Health
Insurance Deduction for Self-Employed Individuals – Capping family
health insurance deductions at $1,442 per month adds $452 billion in
new revenues by 2019.
- Replace the Income Tax Exclusion for
Employment-Based Health Insurance with a Phased-Out Deduction –
Beginning to phase-out the exclusion for employer health insurance at
$160,000 in family income adds $552 billion in new revenues by 2019.
- Disallow New Contributions to Health Savings Accounts – Adds $10.5 billion in new revenue by 2019.
the Existing Income and Payroll Tax Exclusion on Employer Provided
Health Insurance with a Refundable Credit – A more limited credit equal
to 25% of health insurance premiums that would be phased out for high
earners would increase federal revenues by a whopping $606 billion by
Expand Access to Public Programs
- Raise the Age of Eligibility for Medicare to 67 – Reduces Medicare spending by $85.6 billion by 2019.
a Medicare Buy-In Program for Individuals Ages 62 to 64 – Adds $1.2
billion to the deficit by 2019. CBO estimates the average single
premium would be $7,600 a year in 2011.
- Expand Medicaid
Eligibility to Include Young Adults with Income Below the Federal
Poverty Level – Adds $22 billion to mandatory spending by 2019.
a Medicaid Buy-In Program – Allowing the uninsured below 300% of
poverty to buy-in to Medicaid would add $7.8 billion to the deficit by
- Expand Medicaid Eligibility to Include Parents with
Income Below the Federal Poverty Level – Adds $37 billion to the
deficit by 2019.
Quality Initiatives and Pay-for-Performance
- Reduce Medicare Payments to Hospitals with High Readmission Rates Above the 50th Percentile – Saves $9.7 billion by 2019.
- Expand the Hospital Quality Incentive Demonstration to All Hospitals – Saves $2.9 billion by 2019.
- Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions – Reduces mandatory spending by $45 million by 2019.
Physicians to Form Bonus-Eligible Organizations and Receive
Performance-Based Payments – Reduces spending by $5.3 billion by 2019.
Primary Care Physicians in Medicare Using a Partial-Capitation System,
with Bonuses and Penalties – A net reduction of $5.2 billion in
spending by 2019.
- Pay for a Medical “Home” for Chronically Ill
Beneficiaries in Fee-for-Service Medicare – An increase in mandatory
spending of $5.6 billion by 2019.
- Fund Research Comparing the
Effectiveness of Treatment Options – The net effect on the deficit
between 2010 and 2019 would be an increase of $860 million and “reduce
total spending on health care in the United States by an estimated $8
billion over the 2010–2019 period (or by less than one-tenth of 1
percent).” CBO seems to be saying that more such information will be of
small value unless underlying incentives that promote inefficient
practice patterns are not changed.
Health Information Technology
Incentives in Medicare for the Adoption of Health Information
Technology Including Bonuses and Penalties for all Physicians – A
reduction in the deficit of $4.4 billion by 2019.
- Require the
Use of Health Information Technology as a Condition of Participation in
Medicare – A savings of $11 billion on physician payments and a savings
of $23 billion for hospitals by 2019.
Change Provider Payments
Medicare’s Fees for Physicians in Areas with Unusually High Spending –
A reduction of $5.3 billion in federal spending by 2019.
- Reduce Medicare’s Payment Rates Across the Board in High-Spending Areas – A savings of $51 billion by 2019.
Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected
Productivity Gains – $201 billion in savings by 2019.
the Update Factor for Hospitals’ Inpatient Operating Payments Under
Medicare by 1 Percentage Point – A savings of $93 billion by 2019.
the Update Factor for Payments to Providers of Post-Acute Care Under
Medicare by 1 Percentage Point – A savings of $54 billion by 2019.
Inflation-Related Updates to Medicare’s Payment Rates for Home Health
Care for Five Years – A savings of $50 billion by 2019.
the Sustainable Growth Rate Formula for Updating Medicare’s Physician
Payment Rates With Annual Updates Based Upon the Medicare Economic
Index (MEI) and Include a Part D Hold-Harmless– Eliminating the
Sustainable Growth rate Formula and rebasing on the MEI would increase
spending by $556 billion over ten years. Freezing payments at 2009
levels would cost $318 billion over ten years.
- Set the
Benchmark for Private Plans in Medicare Equal to Local Per Capita
Fee-for-Service Spending – Reduces spending by $157 billion by 2019.
Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare
Part D – Using the Medicaid rebate policy as a model saves $110 billion
Allotment Caps for the State Children’s Health Insurance Program and
Permit States to Expand Coverage up to 400 Percent of the Federal
Poverty Level – Adds $80 billion to the deficit by 2019.
Premium and Cost Sharing in Federal Programs
- Require a Copayment for Home Health Episodes Covered by Medicare – A 10% Copay saves $47 billion by 2019.
- Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare – Saves $27 billion by 2019.
- Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare – Saves $24 billion by 2019.
a Premium for Higher-Income Enrollees Under Medicare’s Drug Benefit
Similar to That Used in Part B – Saves $10 billion by 2019 without
adjusting for inflation.
- Increase Funding for the Health Care
Fraud and Abuse Control Program in Medicare and Medicaid by $1 billion
– Savings of $1.5 billion by 2019 for a net savings of $500 million.
the Payroll Tax Rate for Medicare Hospital Insurance by One Percentage
Point – Increasing the Medicare tax by one percentage point on all
earnings would increase federal revenue by $592 billion by 2019—doing
it only on earnings above $150,000 would increase federal revenues by
$77 billion by 2019.