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Budget Office Glum On Health Reform Savings

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Proposed health care reform legislation would not only fail to reduce federal budget deficits but would probably increase them significantly, the Congressional Budget Office projects.

Ultimately, the proposals being advanced by various congressional committees could add $100 billion a year to the federal budget, Douglas Elmendorf, CBO director, said Thursday in congressional testimony.

Elmendorf also said that depending on cuts in payments to the Medicare Advantage program to finance reform would not significantly reduce deficits.

For example, the largest savings proposed in the President’s budget would arise from a decrease in payments to private health insurance plans in the Medicare Advantage program, projected as $157 billion over 10 years through the bill approved by the House Ways and Means Committee Thursday, Elendorf said.

“If enacted, that change would permanently lower the level of Medicare spending, but it would probably not offset a noticeably larger share of the cost of an expansion of insurance coverage in the second 10 years than in the first,” he said.

Moreover, any savings in existing federal programs that were used to finance a significant expansion of health insurance would not be available to reduce future budget deficits. In light of the current path of the federal budget, using savings to finance new programs instead of reducing the deficit would call for even stronger actions in other areas of the budget, Elmendorf said.

One reason for the huge costs of reform is that supporters of health care reform are broadly overstating the savings from providing healthcare coverage for the uninsured, largely through hospitals, he said.

“Uncompensated care is less significant than many people assume,” he said in written testimony to the Senate Budget Committee.

He cited one study that showed hospitals provided about $35 billion in uncompensated care nationwide in 2008–less than 2% of national health expenditures. Estimated costs of unpaid care for other providers are much smaller, he said.

In addition, most expansions of insurance coverage that are under consideration would leave a moderate number of people uninsured, in part because some people would be ineligible for subsidies or would choose not to buy insurance, even with large subsidies.

“Therefore, any current problems arising from the lack of insurance could be reduced but not eliminated,” he testified.

Moreover, wellness programs would not bring in the savings that proponents of universal healthcare legislation believe they would, he said. That’s because a significant share of the population moves in and out of insurance coverage during a year, “which complicates efforts to provide effective prevention and wellness services,” he said.

He added that “those services are less broadly effective at reducing health care spending than might be expected, and in any event, expansion proposals would not eliminate all of the churning that makes it harder to maintain continuity of care.”

Moreover, a large-scale expansion of insurance coverage as foreseen by current reform proposals would represent a permanent increase of roughly 10% in the federal budgetary commitment to health care, Elmendorf said.

Many of the proposals to expand insurance coverage significantly would add to federal costs because they would provide large subsidies to help lower-income individuals and families purchase insurance, he noted.

Even reducing the rate of growth in payments to healthcare providers is unlikely to reduce the costs of providing universal health care coverage, he added.

Providers might be more willing to accept slower growth if they were not worried about the possible impact of slower payment growth on access to medical care for uninsured or underinsured people, Elmendorf said.

“But budgetary savings from reducing payments to providers would not occur automatically with broader insurance coverage,” he said. Those savings “would arise only to the extent that legislation explicitly trimmed payment rates relative to levels under current law,” he explained.

In another blow to proponents of reform, Elmendorf said that even if a reform package achieved “budget neutrality” during its first 10 years, budgetary savings in the long run would not be guaranteed, “even if the package included initial steps toward transforming the delivery and financing of health care that would gain momentum over time,” he said.

He observed that an expansion of insurance coverage would be phased in over time to allow for the creation of new administrative structures such as insurance exchanges. As a result, the cost of an expansion during the 2010-2019 period “could be a poor indicator of its ultimate cost.”

An Obama administration spokesman acknowledged that initial health care reform proposals don’t have all the cost-saving measures the administration has proposed.

“But I would say the President has been committed to getting stakeholders to the table, finding different ways to save money and produce the revenue that we need for comprehensive health care reform,” said Bill Burton, White House deputy press secretary.


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