By John Reichard, CQ HealthBeat Editor
February 10, 2009 -- Senate Budget Committee Chairman Kent Conrad warned fellow lawmakers Tuesday against health overhaul plans that would add “hundreds of billions of dollars” to the nation’s health care tab, saying they face “a heavy burden” making the argument for such changes.
The North Dakota Democrat issued that stern warning to those “outside this room” at the start and end of a hearing that dealt largely with what to do about runaway health spending. Because respected economists put the annual cost of such overhaul plans at between $100 billion and $200 billion, Conrad appeared to be saying that universal coverage proposals won’t be enacted.
But Conrad stopped short of that conclusion when asked after the hearing if universal coverage is possible given the nation’s huge fiscal challenges. “There’s a growing consensus that you’ve got to have universality of care in order to get at the cost issue effectively, because to the extent you have people outside the system, they tend to get treated, but they tend to get treated in the most expensive way,” he said.
Conrad also noted in the hearing that there would be worthwhile upfront costs associated with retooling the health system.
Pressing CBO for Answers
Conrad was a man on a mission Tuesday, pressing the hearing’s sole witness Congressional Budget Office (CBO) Director Douglas W. Elmendorf to rank cost control strategies that would deliver the biggest bang for the buck while maintaining or improving health care quality. After a cautious reply in which the CBO director warned of the perils of picking out one or two approaches, Conrad insisted on a list of priorities, saying delay is no longer possible in dealing with the economic impact of fast-increasing health outlays.
“The sweet by and by is upon us,” Conrad said, adding that he has had “some of the most learned people in this country” including prominent economists tell him recently that the nation faces a collapse of its currency and will look like “a banana republic if we don’t deal with this long-term funding issue.”
Elmendorf replied that “the cleanest and strongest lever that you have about private health care is the tax exclusion,” the provision of tax law that excludes employer-paid health insurance premiums from an individual employee’s taxable income. “Many analysts would agree that adjusting that exclusion can be very beneficial for health insurance coverage and for ensuring a more efficient health care system.”
Ending the exclusion would raise some $250 billion in revenues, Elmendorf said. Capping the exclusion rather than eliminating it would still raise significant revenues while making employees more likely to put pressure on employers to avoid offering health plans with lavish coverage that exceed the cap and force individuals to pay income taxes on premium amounts above the cap, he suggested. Some health overhaul proposals call for using revenues raised by changing the exclusion to subsidize premium payments by those of modest means in a system in which individuals would be required to carry coverage. Sen. Ron Wyden, D-Ore., has offered such a proposal (S 391), attracting six other Democrats, five Republicans and one Independent as cosponsors.
“In the public sector . . . the comparably clean and strong lever would be increasing cost-sharing by Medicare beneficiaries,” Elmendorf added. Those savings are partly from reduced use of health care services, “but more importantly, [from] shifting of the costs to the beneficiaries.”
Another approach is reimbursing doctors and hospitals more for providing higher value care rather than simply reimbursing based on the volume of care, Elmendorf continued. Conrad interrupted, saying he is particularly interested in that approach. “If you reimbursed based on the number of procedures, you’re going to get a lot of procedures,” Conrad said. Elmendorf said that one tactic is to put doctors on the payroll and to pay them salaries. That results in “30 percent less health care,” he said.
If doctors practice independently, “bonus-eligible organizations” could be formed in which doctors figure out how to work together to provide more efficient care, sharing resulting savings with the government in the case of treating Medicare patients for example.
Conrad said he is “intrigued” by the idea of paying such incentives to doctors. “I think we’ve got to have a carrot approach here, to make it attractive for them so they are in on the solution and they feel that they’re being treated fairly,” he said.
In his testimony, Elmendorf expressed skepticism about big savings from a variety of approaches to reining in costs, including better preventive care and wider use of health information technology. That drew a tough line of questioning from Sen. Sheldon Whitehouse, D-R.I., who said CBO analyses do not take into account the effects of varying approaches “interacting dynamically.” Whitehouse drew a parallel to a toaster, a plug and a piece of bread. The three by themselves have no impact but if the bread is put in the toaster and the toaster is plugged in, the result is toast. Similarly, if doctors and hospitals have financial incentives to use health information technology, the result is major savings on health costs, Whitehouse suggested.
“I agree completely with your concerns,” Elmendorf responded, adding that CBO in many cases must make cost impact estimates based on “weak evidence. “I don’t think our numbers should be the ultimate determinants” of what lawmakers vote for or against, he said. He agreed with Whitehouse that lawmakers must take “leaps of faith” in assembling a cost control strategy but said “our expertise could be very valuable in judging what leaps to take.” Elmendorf endorsed trying “a set of things” instead of relying on a single “silver bullet,” saying some elements could be “duds” while others work out better than expected.
Widening Coverage
Elmendorf said the nation could obtain “near universal coverage” by pooling together people with high and low risks of incurring health costs, offering subsidies to make insurance affordable to families with lower incomes and mandating that individuals carry coverage or by creating a process to simplify enrollment in health plans. Achieving universal coverage based on subsidies alone would be expensive because they would have to cover a big chunk of premium costs, he said. Without changes in policy, the number of uninsured will rise from at least 45 million in 2009 to 54 million in 2019, he said.
Wyden took heart form Elmendorf’s testimony. Without commenting specifically on Wyden’s plan, it suggested that his approach to funding universal coverage might generate growing savings. The CBO has scored the cost of the Wyden plan, which adjusts the exclusion of employer-paid premiums, as budget-neutral. Elmendorf observed in his testimony that savings from eliminating or adjusting the current tax exclusion “would grow steadily because the revenue losses that stem from that exclusion are rising at the same rate as health care costs.”
Conrad said the Wyden proposal is a “real contribution” because of its CBO scoring. But he added after the hearing that there are “real issues” with the Wyden plan, expressing concern about its impact on employer-based health insurance.