July 25, 2009, 9:06 pm
More on Paying for Health Reform
By David Leonhardt
Peter Orszag, the White House budget director, also wrote a blog post about “MedPac on steroids” this afternoon. In it, he says that this version of MedPac — an empowered panel that’s been proposed by the White House, with the ability to alter how Medicare reimburses medical care — was never intended to help pay for health reform. Instead, it was meant to help reduce the long-term growth of health costs.
He also took a gentle swipe at the Congressional Budget Office — which he used to run. But fascinating as that is, we’ll get to it in a minute.
First a bit of background: The fight over health reform involves two kinds of costs. The first is the cost of covering the uninsured. Economists estimate this will cost something like $100 billion a year (and, even at this price, won’t cover all of the uninsured). The second involves reducing the overall growth of medical costs. As readers of my column may know, I think the second is the more important issue. Medical costs are already costing the typical American family thousands of dollars a year, and they are rising at a pace that would make the federal government insolvent.
The Obama administration is trying to put together a health reform bill that would deal with both of those costs. To pay for the uninsured, they have proposed a package of Medicare changes that would save about $50 billion a year. (The best known is the elimination of the current subsidy for private insurers that provide the same services as Medicare, but not as cheaply.) To bring down long-term costs — or to “bend the curve,” as administration officials like to say — they have proposed several steps, including “MedPac on steroids,” which is formally known as IMAC.
Many health experts think that the current versions of health reform in Congress don’t do enough to bend the curve. The IMAC proposal was an attempt by the administration to push Congress to do more. As Mr. Orszag writes in his blog post:
The point of the proposal, however, was never to generate savings over the next decade. (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.) Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term….
He also noted that the Congressional Budget Office agreed that IMAC “could lead to significant long-term savings in federal spending on health care” He continued: “The bottom line is that it is very rare for CBO to conclude that a specific legislative proposal would generate significant long-term savings so it is noteworthy that, with some modifications, CBO reached such a conclusion with regard to the IMAC concept.”
What should we make of this? It’s all fair for Mr. Orszag to point out. But it’s also true that the administration would have been very happy if the Congressional Budget Office had decided that IMAC would bring more medium-term savings. That would have left Congress and the administration with a smaller budgetary hole to fill, in order to pay for an expansion of insurance. To fill that hole, Congress is likely to rely largely on a combination of taxes on the wealthy, like a surtax on households making at least $1 million.
Now, about that swipe Mr. Orszag took at his former place of employ:
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. 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.
In effect, Mr. Orzag is suggesting that the Congressional Budget Office is overestimating its ability to see into the future.
It will interesting to see whether Douglas Elmendorf, the current director of the Congressional Budget Office, responds on his blog.
More on Paying for Health Reform - Economix Blog - NYTimes.com