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CBO Letters Prompt More Sparring Over Health Overhaul Savings, Coverage

By Jane Norman, CQ HealthBeat Associate Editor

July 27, 2009 --Two new reports issued by the Congressional Budget Office (CBO) over the weekend renewed sparring over the health overhaul, as members of Congress returned to work on Monday and faced what could be a final week of frenzied negotiations over the legislation prior to an August recess for House members
Perhaps raising the most eyebrows was a brisk retort from White House Office of Management and Budget Director Peter Orszag to a letter from Douglas Elmendorf, head of the Congressional Budget Office (CBO). In the letter, the CBO said that an Obama administration proposal for an independent Medicare advisory board would save just $2 billion over 10 years.

"As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today's analysis from CBO could feed that perception," Orszag said in a blog post published Saturday.

"For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could 'eventually achieve annual savings equal to several percent of Medicare spending. . .[which] would amount to tens of billions of dollars per year after 2019.' Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals. In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped," he said.

In the IMAC letter, the CBO estimated savings from the creation of an independent Medicare advisory commission with broader powers than those now held by the Medicare Payment Advisory Commission (MedPAC), an influential advisory body created in the 1990s to research and recommend Medicare policy.

CBO Director Elmendorf said in the letter written Friday to House Majority Leader Steny H. Hoyer, D-Md., that CBO reviewed the Independent Medicare Advisory Council Act of 2009 submitted by the Obama administration to Congress on July 17. It calls for a five-member body made up of physicians and health experts, appointed by the president and confirmed by the Senate, The council would make annual recommendations to the president on Medicare spending and the entire package would be approved or disapproved by the president. If approved, the recommendations could be overturned by a joint resolution of Congress.

Elmendorf said that CBO estimated the council would produce savings of $2 billion between 2010 and 2019, with all of the savings coming between 2016 and 2019 if the proposal is added to the House Democrats' America's Affordable Health Choices Act of 2009 (HR 3200). Elmendorf said that chances are "high" that no savings would actually result though there is also "a chance that substantial savings might be realized."

Looking beyond the 10-year window, "CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis," Elmendorf wrote. He said that if the legislation would grant the new commission broad powers, set "ambitious but feasible" spending targets and create a fall-back mechanism for instituting Medicare savings, it could eventually produce savings equal to "several percent of total spending on Medicare."

But Elmendorf warned that also would mean significant changes in the way Medicare pays for and delivers services.

Success, he said, would require an IMAC with "the clear mandate, independence and resources to propose such changes." Elmendorf outlined a number of potential problems, including a weight in the membership of the council toward medical providers who might be reluctant to recommend wholesale change and the possibility of political influence by interest groups on the members of the council.

Orszag, however, focused on the language in the CBO letter that said savings could be realized. He pointed out that CBO "noted that this type of approach could lead to significant long-term savings in federal spending on health care and that the available evidence implies that a substantial share of spending on health care contributes little, if anything, to the overall health of the nation. This supports what President Obama has said all along: we can reduce waste and unnecessary spending without reducing quality of care and benefits."

He said the point of the IMAC proposal was never to produce immediate savings. "Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term," said Orszag. "In other words, in the terminology of our belt-and-suspenders approach to a fiscally responsible health reform, the IMAC is a game changer not a scoreable offset."

In a second letter from the CBO, this one to Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, both parties found arguments to support their positions.

Republicans seized upon a statement in the letter that the House Democratic proposal would "generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window." House Republicans said in a statement that could mean a "massive spike" in the federal deficit beyond the 10-year window covered by budget estimates.

Said Camp in a statement: "When you find yourself in a hole, the first rule is to stop digging. But with this bill the Democrats keep digging a bigger and bigger deficit hole, and now we have CBO confirming it. If they can't stop digging, for the good of the nation they should at least get a smaller shovel."

Democrats, however, said the CBO letter bolstered their case that their bill would lead to an increase in employer-provided group insurance coverage rather than harming it as Republicans have maintained, using estimates generated by an outside consultant.

"The analysis confirms that provisions in HR 3200, such as the individual and employer responsibility requirements, retaining the tax benefit for employer-sponsored insurance, and the targeted income-related structure of affordability credits would result in dramatically increased coverage without crowding out private insurance," said a statement from Democrats on the three committees involved in approving the bill.

Specifically, they pointed out, the CBO letter states that "about 12 million people who would not be enrolled in an employment-based plan under current law would be covered by one in 2016, largely because the mandate for individuals to be insured would increase workers' demand for insurance coverage through their employer." The CBO also says that "CBO does not anticipate a substantial shift from private insurance to Medicaid. Specifically, we estimate that about 1 million people who would otherwise have employment-based insurance or individually purchased coverage would end up enrolling in Medicaid in 2016."

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