Two New CBO Reports on Health Care Issues

December 18, 2008

Today, CBO is releasing two volumes that focus on health care issues: Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume 1: Health Care. These two volumes build upon CBOs previous analytical work on health insurance and health care financing issues and are intended to assist the Congress as it contemplates possible changes-- both large and small-- to federal health programs and thenation's health insurance and health care systems. In keeping with CBOs mandate to provide objective, impartial analysis, neither volume makes any recommendations.

The first document, Key Issues in Analyzing Major Health Insurance Proposals, focuses on large-scale proposals, provides extensive background information, and explains CBOs analysis of numerous issues that could arise should the Congress seek to enact major changes in the healthinsurance system. Key Issues does not provide analyses of specific proposals; rather, it provides an overview of CBOs approach to major questions and issues that would likely arise in the context of such legislation. Its main conclusions are as follows:

  • The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will rise from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050. Most of that increase will result from rising per capita costs, rather than from the aging of the population.
  • Without changes in policy, a substantial number of nonelderly people (those younger than 65) are likely to be without health insurance. CBO estimates that the average number of nonelderly people who are uninsured will rise from at least 45 million in 2009 to about 54 million in 2019.
  • Those problems cannot be solved without makingmajor changes in the financing or provision of health insurance and health care. In considering such changes, policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal spending and total costs for health care.
  • By themselves, premium subsidies or mandates to obtain health insurance would not achieve universal coverage. Proposals could, however, achieve near-universal coverage using a combination of approaches.One option, for example,would be to establish an enforceable mandate for individuals to obtain insurance andprovide subsidies for lower-income households to help them pay their required premiums. Another option, under a voluntary system, would be to provide subsidies that cover a very large share of the expected costs of insurance for every enrollee and establish a process to facilitate enrollment (as is done in Medicare). Other policies could achieve substantial reductions in the number of people who are uninsured at a lower budgetary cost.
  • Serious concerns exist about the efficiency of the health care system, but no simple solutions are available to reduce the level or control the growth of health care costs. Steps to restructure the insurance market and to encourage people to purchase less extensive coverage could reduce the use of treatments that provide minimal benefits, but enrollees would face higher cost sharing or tighter management of their care.
  • Other approachessuch as the wider adoption of health information technology or greater use of preventive medical carecould improve people's health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary window.
  • In many cases, the current health care system does not give doctors, hospitals, and other providers of health care incentives to control costs. Significantly reducing the level or slowing the growth of health care spending would require substantial changes in those incentives.

The second document, Budget Options, Volume I: Health Care,is much more specific and focused on discrete changes. It presents 115 discrete options, encompassing a broad array of issues related to the financing and delivery of health care. (Volume 2 of Budget Options, which will address policy options in other areas of the federal budget, will be issued in 2009.) The health care volume includes some options that would reduce spending and others that would increase it, as well as changes that would reduce or raise revenues. Those options were culled from a wide variety of sources. Many variants are possible, and many other options exist but are not included in the report. The inclusion or exclusion of a particular policy option does not represent an endorsement or rejection by CBO, which does not make policy recommendations.

The options in the volume are organized by thematic chapters:

  • The private health insurance market
  • The tax treatment of insurance
  • Changing the availability of health insurance through existing federal programs
  • The quality and efficiency of health care
  • Geographic variation in spending for Medicare
  • Paying for Medicare services
  • Financing and paying for services in Medicaid and SCHIP
  • Premiums and cost sharing in federal health programs
  • Long-term care
  • Health behavior and health promotion
  • Closing the gap between Medicares spending and receipts.

The Budget Options volume presents CBOs estimates of year-by-year costs or savings for five years, as well as a 10-year total. The options are not additive; a package of multiple options would, in many cases, have a budgetary effect that differs from the sum of the individual effects because of interactions among them. Subsequent cost estimates by CBO or revenue estimates by the Joint Committee on Taxation may differ from the estimates in the volume either because the policy proposal differs from the option as described, or because of additional data and analysis.

These projects involved an enormous amount of effort by more than three dozen CBO staff over a period of many months, and weare gratefulto thehealth policy group of the staff of the Joint Committee on Taxation, whichpreparedestimates for the various tax provisions.

The reportsprovide a foundation for the CBOs work in the next Congress.New issues will arise, however, and more analysis will be necessary, so CBO will continue its own energetic research efforts and will follow carefully the research of others on health care issues.