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CBO chief: Health reform proposals would hike costs
July 17th, 2009
WASHINGTON – Proposed health care reform legislation as it stands would balloon federal health care spending — not curb it — and hoist the nation’s already soaring debt levels, according to the head of the Congressional Budget Office (CBO).
In a budget outlook hearing Thursday before the Senate Budget Committee, CBO director Douglas Elmendorf told committee chairman Kent Conrad (D., N.D.) that health care reform legislation now winding its way through Congress doesn’t address the spending changes that need to be made for meaningful long-term savings and could actually increase the government’s cost burden.
“In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount,” Elmendorf said in answering questions from the committee. “And on the contrary, the legislation significantly expands the federal responsibility for health care costs.
“Changes we have looked at so far [in proposed legislation] do not represent the fundamental change on the order of magnitude that would be necessary to offset the direct increase in federal health costs from the insurance coverage proposals,” he added.
The hearing focused on the CBO Long-Term Budget Outlook, released last month. The report projected that national debt would reach 100% of gross domestic product by 2023 and surge to 400% of GDP over the next 50 years.
Key drivers of the debt load include the federal response to the recession, the permanent extension of the 2001 and 2003 tax cuts, costs associated with the retirement of baby boomers, and skyrocketing health care costs, which are forecast to swell from 17% of GDP in 2010 to 38% by 2050, the CBO report said.
“Rising health care costs remain the biggest threat to the federal budget,” Conrad said in his opening remarks. “These rising health costs are exploding the cost of federal health programs. And private sector health spending is also exploding. According to CBO’s report, taken together, public and private health care spending will reach 38% of GDP by 2050. That’s more than one in every three dollars in this economy just going for health care, and that is a completely unsustainable trajectory.”
Elmendorf noted that a chunk of current health care spending is wasteful because it’s not having its desired effect of improving public health. The CBO report cited a Dartmouth University study finding that 30% of health expenditures may not be contributing to better health outcomes.
In addition, he said proposals to create a new subsidy for health insurance, despite being a key component of expanding coverage, would “by itself increase the federal responsibility for health care [and] that raises federal spending on health care.”
Besides efforts to make public and private health care spending more effective, other potential ways to rein in health costs include changing the preferential tax treatment of health insurance and the way that Medicare pays health care providers, Elmendorf explained. The latter, he said, needs to “encourage a focus on cost effectiveness in health care and not encourage, as a fee for service system tends to, the delivery of additional services because bills for that will be paid.”
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