Congressional Budget Office Reports on Health Care Reform Issues and Options

With the imminent change in presidential administration, there will be multiple (and perhaps conflicting) legislative proposals for major reforms in how health care is provided and financed. Stakeholder debate on all facets of any proposal is expected to be both wide-ranging and deep, and will overlap with other issues facing the Obama administration such as economic recovery. A key congressional research arm, the Congressional Budget Office (CBO), is already doing its homework and preparing for a robust debate by issuing two background reports designed to provide members of Congress with tools to analyze the forthcoming proposals. These timely reports, issued on December 18, 2008, provide background context for the specific proposals that will likely be forthcoming. The reports, or at least their introductory summary chapters, are recommended reading for all who need a better understanding of the complexities of health care reform.

The reports, entitled Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care, provide a comprehensive overview of the numerous policy challenges and tradeoffs that Congress and the Obama team will need to tackle when crafting viable legislative proposals. According to CBO, the reports are “intended to assist the Congress as it contemplates possible changes — both large and small — to federal health programs and the nation’s health insurance and health care systems.” CBO is a well-respected impartial voice on Capitol Hill, and its findings are routinely cited by members of both parties during policy discussions. While neither report makes recommendations as to which options Congress should consider or enact, CBO does draw conclusions regarding the current state of the health care system and the impact of the various options considered.

The first report, Key Issues in Analyzing Major Health Insurance Proposals (Key Issues), provides extensive background information regarding the current state of the health care system, broadly describes the numerous issues that could arise should Congress seek to enact major changes in that system, and explains how CBO would analyze those issues. The report does not analyze specific proposals; rather, it provides an overview of CBO’s approach to major questions and issues that would likely arise in the context of health care reform legislation.

Key Issues frames the major issues in the upcoming health care debate by drawing the following “main conclusions”:

• Rising Cost of Existing Programs. The rising cost of health care and health insurance poses a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will rise from about four percent of gross domestic product (GDP) in 2009 to nearly six percent in 2019 and 12 percent by 2050.
• Increase in the Uninsured. Without changes in policy, the average number of nonelderly people who are uninsured will rise by 10 million people over the next decade, from at least 45 million in 2009 to about 54 million in 2019.
• Financing Options. The issues facing our health care system will require major changes in the financing or coverage provisions 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.
• Role of Private Insurance. By themselves, premium subsidies or mandates to obtain health insurance would not achieve universal coverage. Proposals could, however, achieve near-universal coverage using a combination of approaches.
• Improving Program Efficiency. Serious concerns exist about the efficiency of the health care system, but no simple solutions are available to reduce the level or control the growth of health care costs. Steps to restructure the insurance market and to encourage people to purchase less-extensive coverage could reduce the use of treatments that provide minimal benefits, but enrollees would face higher cost-sharing or tighter management of their care.
• Integrating Advances in Care. Other 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.
• Aligning Incentives to Providers. In many cases, the current health care system does not give doctors, hospitals, and other providers of health care incentives to control costs. Significantly reducing the level or slowing the growth of health care spending would require substantial changes in those incentives.

The second report, Budget Options, Volume I: Health Care (Budget Options), is much more specific and focuses on discrete potential changes in health care policy. Budget Options presents 115 specific options, addressing a broad array of issues related to the financing and delivery of health care. The report includes some options that would reduce spending and others that would increase it as well as changes that would reduce or raise revenues.

CBO organizes the 115 options in the report by thematic chapters as follows:

• The Private Health Insurance Market, which addresses options such as imposing a “pay-or-play” requirement on large employers, establishing a national high-risk program, and limiting awards from medical malpractice torts.
• The Tax Treatment of Insurance, which analyzes options such as reducing the tax exclusion for employment-based health insurance and the insurance deduction for self-employed individuals, and changing the laws governing health savings accounts in various ways.
• Changing the Availability of Health Insurance Through Existing Federal Programs, which considers options such as raising the age of Medicare eligibility to 67, creating a Medicare or Medicaid buy-in program for certain individuals, expanding Medicaid in various ways, and permitting firms and individuals to participate in the Federal Health Benefits Program.
• Paying for Medicare Services, which addresses numerous options for modifying the calculation of Medicare payment amounts and increases.
• Financing and Paying for Services in Medicaid and State Children’s Health Insurance Program (SCHIP), which analyzes numerous options for changing Medicaid funding, benefits, and eligibility rules.
• Premiums and Cost Sharing in Federal Health Programs, which considers options such as increasing copayment amounts for certain Medicare services, increasing the basic Medicare Part B premium enough to cover 35 percent of the program’s costs, and eliminating the “doughnut hole” in the Part D drug benefit.
• Long-Term Care, which addresses options such as making home- and community-based services a mandatory benefit, changing the rules regarding asset transfers by beneficiaries, and implementing policies that encourage the use of advance directives.
• Health Behavior and Health Promotion, which covers options such as imposing an excise tax on sugar-sweetened beverages, increasing taxes on cigarettes and alcohol, and reducing payment rates to primary care physicians with low influenza vaccination rates.
• The Quality and Efficiency of Health Care, which analyzes options such as bundling payments for hospital care and post-acute care, denying payment under Medicaid for certain hospital-acquired conditions, establishing regional centers of excellence for selected surgical procedures covered by Medicare, and expanding incentive programs for physicians and other practitioners who meet quality standards.
• Geographic Variation in Spending for Medicare, which addresses options such as reducing Medicare’s fees for physicians in areas with unusually high spending, reducing Medicare payment rates for hospitals in areas with a high volume of elective admissions, and reducing Medicare payment rates across the board in high-spending areas.

Budget Options presents CBO’s estimates of year-by-year costs or savings for five years as well as a 10-year total for the various options. It notes, however, that the options are “not additive” and that “a package of multiple options would, in many cases, have a budgetary effect that differs from the sum of the individual effects because of interactions among them.” Moreover, the report warns that subsequent cost estimates by CBO or revenue estimates by the Joint Committee on Taxation may differ from these option estimates, “either because the policy proposal differs from the option as described, or because of additional data and analysis.”

Impact
The two reports collectively provide a compendium of the major problems with the current health care system facing Congress, the solutions Congress will likely consider, and how CBO, as a key congressional advisor, will analyze those solutions. The reports, or at least their introductory summary chapters, are important reading for anyone who wants a crash course in the complexity of these issues, or who plans to participate in the upcoming discussions. Stakeholders should begin now to anticipate which provisions may be proposed for discussion and the impact those proposals will have on their future operations. 

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Robert C. Geist, Jr.
Washington, D.C.
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Philip G. Kiko
Washington, D.C.
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Michael Scarano
San Diego/Del Mar, California
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Lawrence W. Vernaglia
Boston, Massachusetts
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Judith A. Waltz
San Francisco, California
415.438.6412
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