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CBO Compares Health Finance Ideas

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Letting an insurer selling health coverage approved in one state sell the same coverage in other states might be an especially efficient way to expand the number of people with coverage.

Douglas Elmendorf, director of the Congressional Budget Office, presented that conclusion today at a hearing of the Senate Budget Committee.

Analysts at the Congressional Budget Office compared the cross-state sales approach with several other proposals, such as a proposal that would require health insurers to charge all individuals in the same community the same rates, regardless of the individuals’ health status.

The analysts also looked at the idea of requiring all states to establish pools that would insure the health of “high-risk” individuals, and then having the federal government subsidize enrollees’ premiums.

Simply letting health insurers sell health coverage across state lines could increase the number of people with health coverage about 400,000 by 2014, Elmendorf testified, according to a written version of his remarks.

About 100,000 individuals would drop coverage due to higher costs, and 100,000 employees and dependents would lose coverage when their employers dropped coverage, Elmendorf said.

But roughly 600,000 individuals with relatively low expected health costs would gain coverage, CBO analysts estimate.

The federal government likely would gain about $7.6 billion revenue: the government might spend about $400 million more on Medicaid, but it could collect $8 billion in additional tax revenue over 10 years, as employers converted some tax-exempt health expenditures into taxable wages.

CBO analysts predict that imposing a “community rating” pricing requirement on small group coverage in all states probably would reduce the total number of U.S. residents with health coverage about 400,000 by 2014. But shifting to a nationwide community rating approach might increase tax revenue by about $5 billion over 10 years, CBO analysts estimate.

Subsidizing risk pool coverage would increase the number of people with health coverage by about 175,000 at a cost of $16 billion over 10 years, the analysts estimate.

Elmendorf said estimates for some type of proposals, such as risk pool subsidies, depend heavily on program details.

The cost of risk pool subsidies, for example, “would depend primarily on the average health care costs of enrollees, the share of those costs covered by the pool, and the number of people who enrolled as a result,” Elmendorf testified.

Elmendorf also talked generally about the barriers to making efforts to control health care costs and federal health care spending pay off.

“Initiatives are not costless to implement,” Elmendorf said, noting, for example, that the government might have to spend heavily on disease management programs for relatively healthy people for years before the programs would have a noticeable effect on health care spending.

Similarly, encouraging patients to have a “medical home” might not cut spending if the primary care physicians have no incentive to economize on patients’ overall use of medical services, Elmendorf said.

Even if a move, such as limiting medical malpractice lawsuits, reduces costs, or the rate of increase, proving that the move is responsible for cutting costs or slowing increases might be difficult, Elmendorf said.

Links to a copy of the written testimony and a video recording of the hearing are available here.


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