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CBO Chief: Health Bills to Increase Federal Costs

By David Clarke and Edward Epstein, CQ Staff

July 16, 2009 -- The health care overhauls released to date would increase, not reduce, the burgeoning long-term health costs facing the government, Congressional Budget Office (CBO) Director Douglas Elmendorf said Thursday.

That is not a message likely to sit well with congressional Democrats or the Obama administration, and House Speaker Nancy Pelosi, D-Calif., said Thursday she thinks lawmakers can find ways to wring more costs out of the health system as they continue work on their bills.

The chairman of the Senate Finance Committee, Democrat Max Baucus of Montana, who has not yet released a bill, said his panel is acutely aware of the long-term cost concern. "Clearly our committee will do what it can," he said. "We are very seriously concerned about that issue. We very much want to come up with a bill that bends the cost curve."

But Baucus suggested the White House is making the task difficult with opposition to one cost-cutting approach Elmendorf cited—limiting or even ending the tax exclusion for employer-provided health benefits.

The Democrats and President Obama have cited two goals in their overhaul proposals—expanding coverage to the estimated 47 million Americans who currently lack it and bringing down long-term costs because the growth in Medicare and Medicaid spending threatens to swamp the federal budget in coming years.

Under questioning from Chairman Kent Conrad, D-N.D., Elmendorf told the Senate Budget Committee that the congressional proposals released so far do not meet that second test.

"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," he said.

Elmendorf was not addressing the narrow question of whether the Democrats' legislation would be budget-neutral over 10 years. Congressional Democrats and the White House have promised to offset the cost of health care legislation over that period.

But budget analysts and some members fear the legislation will not slow the growth of health care spending enough to prevent it from overwhelming the federal budget after that 10-year window.

Earlier this week, House leaders introduced their overhaul plan, which is being considered by three committees this week.

Elmendorf said that CBO has not completed its evaluation of the House plan, but what it has seen so far does not represent "the sort of fundamental change, the order of magnitude necessary to offset the direct increase in federal health costs from the insurance coverage proposals."

Senate Bills

The Senate Health, Education, Labor, and Pensions Committee approved its draft bill Wednesday, and Christopher J. Dodd, D-Conn., the acting chairman of that panel, said his panel had reduced the initial price tag of its bill as estimated by the CBO. "I'm very confident we can meet the president's goal of having a fully paid-for 10 year program on health care right around $1 trillion," he said.

Senate Finance, not the HELP Committee, has jurisdiction over the tax code and Medicare—the areas Elmendorf targeted for savings.

Dodd complained that CBO refuses to assume that government savings will occur from an increased focus on wellness and preventive health care.

"The only thing CBO does is tell you how much taxpayer money has to be invested to achieve those results," Dodd said.

"We believe we have crafted legislation that does bend that curve, bring health care costs down and make it affordable for all Americans," he said. "I appreciate their work, but frankly we're on the right track, we have a solid bill and one that's affordable."

The Senate Finance Committee has yet to release its overhaul proposal, and Elmendorf said he did not want to publicly discuss the conversations he has had with members of that committee, including Conrad.

When asked what could be done to help "bend the curve" of health care costs over time, Elmendorf pointed out that most health experts believe the tax exclusion for employer-provided health insurance is an area that could help reduce costs. Many experts say the exclusion encourages high health care spending since it shields workers from the cost of their coverage.

Baucus took aim at Obama on that point. "Basically, the president is not helping us. He does not want the exclusion" to be capped or eliminated, he said.

None of the congressional plans released so far address the tax exclusion, and it is not clear whether Finance will tackle the issue.

Many experts also have told CBO that altering the Medicare payment system so that it emphasizes cost effectiveness, rather than fees for services as the current system does, would also help, Elmendorf said.

"Delivery system reforms," Baucus said, would be "a game changer in this bill."

However, he told reporters two days ago that the payment reforms in his bill and in the House bill are more similar than they are different. And those would not significantly alter the current system.

Surtax vs. Cost Savings

Meanwhile, House Speaker Nancy Pelosi said Thursday that if more cost savings can be produced in the legislation now being assembled in the House, a proposed $544 billion tax surcharge on the wealthiest Americans could be scaled back.

As three House committees began marking up the health care overhaul bill (HR 3200), Pelosi told reporters that she thinks the legislation can eventually wring more costs from the health system.

"I believe all the costs of the health care reform bill can come out of squeezing costs out of the health care system," she said.

But then she added that even if that were true, the revenue from the proposed surtax would be needed to help with startup costs associated with making changes to the health system and for reducing the big federal budget deficit.

"We have to have a revenue stream to pay for it," she said of the bill. "If we don't need it, we can use it to reduce the deficit," Pelosi said.

Under questioning, she said that some of those high-income taxpayers who would face the proposed surcharge might get a break. "If we can get more savings, perhaps we can cut it at the high end," Pelosi said.

Under the surtax plan spelled out by the Ways and Means Committee, the bottom two surtax rates would disappear if health care savings to the government exceed $175 billion by 2013. But those rates would double if the government fails to save at least $150 billion.

Pelosi said she wants to encourage House members to propose more structural changes that could wring costs out of the system. "More structural changes? Absolutely. They are already significant, "she said, referring to the proposed legislation unveiled Tuesday. "Can there be more? Absolutely," she added.

Pelosi said she remains confident that the legislation can be changed enough to bring on board many of the Blue Dog Democrats who have threatened to walk away from a bill that they see as too expensive.

Energy and Commerce Committee Chairman Henry A. Waxman, D-Calif., plans to meet with Blue Dogs to see how their concerns can be addressed.

"What we're saying is, let the process unfold in the public process," Pelosi said. She said members are getting a chance to speak up in the committee markups, then in the Rules Committee and finally on the floor.

She said the bill will be on the House floor in the last week of July, which would fulfill her pledge to have the House vote on the bill before it leaves for its long August recess.

Alex Wayne, Jane Norman and John Reichard contributed to this story.

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