Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


CBO Says Health Care Overhaul Will Be Significant Challenge

By Drew Armstrong, CQ Staff

DECEMBER 18, 2008 -- Health care overhaul will be a priority for President-elect Barack Obama, but a new set of cost estimates by the Congressional Budget Office (CBO) lays out more than a few fiscal challenges for lawmakers hoping to write legislation.

According to two CBO reports released Thursday, "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."

In 2009, health care spending nationwide will make up 17 percent of the gross domestic product, or $2.6 trillion. But by 2017, health spending will make up 20 percent of GDP, and spending per person will rise from $8,300 to $13,000. Meanwhile, federal spending on Medicare and Medicaid will nearly double by 2019, to $1.4 trillion. Most of the increase, according to the CBO, is not from changing demographics but rather from the rising per capita cost of medical care.

The first report, "Key Issues in Analyzing Major Health Insurance Proposals," pokes a hole in the hopes of advocates of health information technology and preventive care—tactics long looked to as major cost savers.

According to the report, those two tactics—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 time frame." For example, requiring doctors and hospitals to adopt health information technology like electronic medical records and prescribing would save taxpayers $22.8 billion over 10 years—a sizeable sum, but not enough to significantly bend the growth in costs.

As for preventive care, widespread programs would end up reducing costs for the small segment of people who would otherwise turn into costly, chronic patients. But at the same time, an even larger portion of people would get preventive care treatments that would, ultimately, cost much and mean little because they were unlikely to develop serious, preventable conditions anyway.

Lawmakers often refer to the CBO reports in crafting legislation. Obama has promised to take up health care overhaul as one of his first priorities, and lawmakers in both chambers are already working up their own plans.

The second CBO publication, a list of policy options published annually, explains the budget implications of various health care proposals, including what would happen through changes to insurance laws.

In his blog, acting CBO Director Robert Sunshine said Thursday that universal coverage likely could be achieved through a combination of mandates, like "pay or play," and subsidies to help the uninsured buy coverage.

If, for example, there was a "pay or play" requirement to force employers to offer insurance or pay a $500-per-employee fine, 330,000 uninsured people would gain coverage, and 90,000 people would come off Medicaid. Government revenues would increase $48.3 billion over 10 years, mostly through collection of fines.

Other options laid out in the CBO reports would have far larger fiscal effects. Senate Finance Committee Chairman Max Baucus, D-Mont., has mentioned changing the tax code as a way to help control health insurance costs. And during the 2008 presidential campaign, Sen. John McCain, R-Ariz., proposed capping the tax exclusion for health benefits. By capping the allowed deduction of health care costs at $565 per month for an individual and $1,440 for a family, the government would save $452 billion over 10 years.

Other researchers also have been studying how to reduce health care costs. A report released Wednesday by the Dartmouth Atlas project said that by reducing wide variations in cost and quality of care that exist across the country, universal coverage could pay for itself.

"We predict that covering everyone will have a much smaller impact on the trend in health care costs, provided that capacity is not increased," said the study's authors, John E. Wennberg and Shannon Brownlee.

According to Wennberg and Brownlee, the government could greatly reduce costs by using payment schemes that force health care providers to coordinate care more and organize into delivery systems, instead of individual providers. The Dartmouth paper also recommends redrawing insurance boundaries, so that high-cost areas and low-cost areas can be separated, creating a more efficient market.

That could also mean changes in the way the government pays for services, mostly through Medicare and Medicaid. "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," said the report.

CBO gives several examples of how to do so. So-called "bundling" of payments—one lump sum for treating of a condition—for hospital care and follow-up would save $18.6 billion over 10 years. Currently, doctors, hospitals and other providers receive many separate payments to treat such a patient. One result of bundling would be more coordination of care. With a single payment, hospitals, doctors and other providers would have an incentive to work more closely together and increase efficiency.

The CBO budget options report also deals with changes to entitlement programs, both as a way to save money and decrease the number of uninsured. Few politicians have dared propose raising the age of eligibility for Medicare to 67, but doing so would save the program $85.6 billion over 10 years.

Another proposal would let people aged 62 to 64 buy into Medicare. While letting them buy in would cut 80,000 from the roles of the uninsured, it would cost $1.2 billion over 10 years.

Medicaid changes are another possibility. Letting people buy into the program up to 300 percent of poverty would cover 1.1 million uninsured and would cost $7.8 billion over 10 years.

Publication Details