CBO Head: Current Health Reform Proposals Won't Save Money

Douglas Elmendorf, head of the Congressional Budget Office, provided a bleak assessment in his testimony on Thursday on whether he thought the healthcare cost curve—which has been steadily rising upward—would finally bend downward under newly introduced reform legislation.

His response to Sen. Kent Conrad (D-ND), chairman of the Senate Budget Committee, who asked the question: An unequivocal "no."

"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. "On the contrary, the legislation significantly expands the federal responsibility for healthcare costs."

In a way, the curve is being raised quickly—influenced by growth in healthcare that is outpacing the economy as a whole and moving forward in "unsustainable rates," Elmendorf said. In 10-20 years, increasing federal healthcare spending—such as through the creation of new subsidies for health insurance—would by itself increase the federal responsibility for healthcare and "raise the amount of activity that is growing at this unsustainable rate."

To offset this situation, substantial reductions in other parts of the "federal commitment to healthcare" would have to be made—either on the tax revenue side or on the spending side with reforms in Medicare and Medicaid, he said.

Modifications that have been looked at so far "do not represent this sort of fundamental change in the order of magnitude that would be necessary to offset the direct increase" of federal healthcare costs under current proposals, he said.

Reiterating what he said in an earlier letter sent to Conrad and Sen. Judd Gregg (R-NH), the ranking minority of the Budget Committee, Elmendorf cited that one way to address costs, which has widespread support among health analysts, includes changing the preferential tax treatment of high-cost health insurance policies.

Currently, subsidies exist for those larger health insurance policies in the American tax code, he said. "And like other subsidies, it encourages more activity [to obtain healthcare], reducing that subsidy would reduce that activity."

On the other hand, changing the way that Medicare pays health providers—by promoting cost effectiveness—would make a difference as well, he said.