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Orszag at OMB: Better Odds for a Health Overhaul?

By John Reichard, CQ HealthBeat Editor

November 20, 2008 -- Congressional Budget Office alumni were divided Thursday over whether a move by agency director Peter Orszag to the top spot at the White House Office of Management and Budget would move the ball forward on overhauling health care or push it back. But they agreed that the appointment would be a strong addition to President-elect Barack Obama's inner circle as it confronts the twin challenges of a faltering economy and a dysfunctional health care system. Orszag could prove to be a forceful advocate for controlling Medicare spending, they added.

Sources on and off Capitol Hill say that the 39-year-old Orszag, a veteran of the Clinton White House, is the leading contender to become OMB's new director. He served at the White House on both the National Economic Council and the Council of Economic Advisers. Before becoming CBO director in January 2007, he headed the Hamilton Project at the Brookings Institution, a Washington think tank. The project conducts research and develops proposals to spur economic growth. While Orszag is a former Clinton appointee and Brookings is viewed as moderate to liberal, his budget and health policy expertise carries weight on both sides of the aisle.

At CBO, Orszag has labored to build an analytical team and a policy "tool kit" to help Congress and the White House assemble an overhaul plan to rein in health care spending Orszag depicts as the leading threat to the nation's long-term fiscal health. Universal coverage appears to fit into Orszag's vision of a more efficient system, making many Democrats comfortable with his current position atop CBO. But they also seem happy at the thought of someone with Orszag's skills advising the Obama White House.

Signaling Change at CBO?
Joseph Antos, a scholar at the American Enterprise Institute who was assistant director for health and human services at CBO from 1994 to 2001, expressed surprise at the possibility of Orszag moving. "It's a puzzle for me," Antos said Thursday in an interview. "I had thought that the best thing all along for Democrats is to keep Peter at CBO." Antos said the budget office has been a "chokepoint" for those arguing that health system changes would produce savings.

He was referring to CBO's refusal over the years to score savings from a variety of health proposals such as health information technology that proponents insisted would save money. CBO on the other hand asserted that convincing evidence of savings had yet to be developed. Orszag "at least a little bit sent a message through various reports that they were willing to take more seriously what some people call 'investments'" in overhauling health care, Antos said.

For example, Orszag said in a Sept. 5, 2007 letter to House Ways and Means Health Subcommittee Chairman Pete Stark, D-Calif., that a program in a House bill to compare the effectiveness of medical treatments would eventually produce modest savings for the health system. "That was a major change for CBO," Antos said. Were the savings "the moral equivalent of zero? Maybe. But that was a signal," Antos asserted. "It broke new ground by saying you didn't need 100 percent proof of everything in order to do a reasonable estimate."

CBO observers also laud Orszag's efficiency in producing reports and estimates, a trait that also could keep the agency from becoming a bottleneck in a new Congress expected to be heavy on health care proposals. "It's really going to be hard to top him" on that score, said Antos.

Robert Reischauer, CBO director from 1989 to 1995, opined that an Orszag appointment to head OMB "is basically a wash" in terms of its effect on overhaul prospects. CBO has already done a lot of analytical work under Orszag—its report on overhaul options is due out soon, for example. It's also possible that someone with Orszag's interest in health policy would replace him, Reischauer added, though he also noted the possibility that Orszag's exit could weaken CBO if the process of finding a successor drags on too long.

On the other hand, hiring Orszag at OMB "seems like, quote, 'a good thing,' from the standpoint of doing health reform." But Reischauer questioned how much time Orszag would have to devote to health care as OMB director. The move "certainly wouldn't hurt, and would probably be a small positive" in improving overhaul prospects.

Fitting Health Care Into a 'Fiscal Box'
Dan Mendelson, associate OMB director for health from 1998 to 2000, noted that Orszag at OMB would be able "to shape both the policy and the budget that will be proposed to Congress." The challenge will be about fitting health care into a fiscal box, Mendelson said. "He will be able to very deftly balance the budget and the policy issues." Mendelson said appointing Orszag would be a wise move but shied away from saying overhaul prospects would be better or worse if the CBO director headed to OMB. "It's a different lever" on health policy, Mendelson said of the OMB position. He likened the OMB and CBO spots to the accelerator and the steering wheel of a car, saying both are necessary to drive it.

Alice Rivlin, who served as CBO director from 1975 to 1983 and as OMB director from 1993 to 1996, said, "It's very important to have leadership in the administration." Rivlin expressed some impatience with the notion of characterizing Orszag as someone whose contribution would be developing an overhaul plan with relatively favorable scoring by CBO. It's not so much about favorable scoring, she said—"We've got to actually get a plan that works," indicating that Orszag would be a big asset in that department.

Mendelson noted though that "what he would lose would be the ability to have the final say on what it costs." When there are differences between OMB and CBO, "it's CBO that matters," he said.

Douglas Holtz-Eakin, who advised the McCain campaign on economic issues and ran CBO from 2002 to 2005, said that, "Peter's got obvious talents and skills" but that his impact "depends on the other moving pieces—who replaced Peter at CBO and what the administration actually does." Would Orszag have too little time as OMB director to have a big impact on a health overhaul plan? "The question is where the administration wants him to spend his time," Holtz-Eakin said.

Apart from health systems changes broadly, Orszag could be a big player on Medicare, former analysts agreed. Orszag has definite ideas on how Medicare should be changed, noting its big geographical variations in spending and the absence of a link between higher spending and higher quality. Democrats have been slammed for shying away from entitlement reform. But Orszag would allow Democrats to talk forcefully about improving the operations of the Medicare program, Antos said.

Reischauer said Orszag could be effective at OMB in pushing the Centers for Medicare and Medicaid Services to obtain more data on the actual costs providers incur in delivering care. There "are lots of prices that are sort of excessive," Reischauer said. "We don't update things as frequently as we should." Tougher requirements for cost reporting would exert downward pressure on payments, a step Reischauer said an Orszag-led OMB might take to help pay at least some of the costs of overhauling physician payments in Medicare to eliminate scheduled cuts that most analysts say are too severe.

"I think OMB is much more likely to push CMS pretty hard with Peter there," Reischauer said.

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