Hearing on expanding health insurance coverage and controlling health care costs

February 11, 2009

YesterdayI testified before the Senate Budget Committeeabout CBO's recent health volumes,Key Issues in Analyzing Major Health Insurance Proposals and Budget Options Volume 1: Health Care.

Congress facesboth opportunities and challenges in pursuing two major policy goals: (1) expanding health insurance coverage, so that more Americans receive appropriate health care without undue financial burden, and (2) making the health care system more efficient, so that it can continue to improve Americans health but at a lower cost in both the public and private sectors.

On a broad level, many analysts agree about the direction in which policies would have to go in order to make the health care system more cost-effective: Patients and providers both need stronger incentives to control costs as well as more information about the quality and value of the care that is provided. But much less of a consensus exists about crucial details regarding how those changes are made. Similarly, many analysts would agree that expanding insurance coverage significantly woudl require risk pooling, subsidies, and tools to mandate or facilitate enrollmentbut would disagree about the relative importance of these pieces. In part, those disagreements reflect different values or different assessments of the existing evidence, but often they reflect a lack of evidence about the likely impact of making significant changes to the complex system of health insurance and health care.

With respect to expanding health insurance coverage, my testimony made the following key points:

  • Without changes in policy, a substantial and growing number of people under age 65 will lack 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. That projection is consistent with long-standing trends in coverage and largely reflects the expectation that health care costs and health insurance premiums will continue to rise faster than peoples incomemaking health insurance more difficult to afford.
  • Proposals could achieve near-universal health insurance coverage by combining three key features: (1) Mechanisms for pooling risksboth to ensure that people who develop health problems can find affordable coverage and to keep people from waiting until they are sick to sign up for insurance. Options include strengthening the employment-based system, modifying the market for individually purchased insurance, and establishing a new mechanism such as an insurance exchange. (2)Subsidies to make health insurance less expensive for individuals and families, particularly those with lower income who are most likely to be uninsured today. For reasons of equity and administrative feasibility, however, it is difficult for subsidy systems to avoid providing new subsidies to people who already have insurance or would have purchased it anyway.(3)Either an enforceable mandate to obtain insurance or an effective process to facilitate enrollment in a health plan. An enforceable mandate would generally have a greater effect on coverage rates, but without meaningful subsidies, it could impose a substantial burden on many people.
  • Many analysts would agree that payment systems should move away from a fee-for-service design and should instead provide stronger incentives to control costs and reward value. A number of alternative approaches could be consideredincluding fixed payments per patient, bonuses based on performance, or penalties for substandard carebut their precise effects are uncertain. Policymakers may thus want to test various options (for example, using demonstration programs in Medicare).
  • Many analysts would agree that the current tax exclusion for employment-based health insurancewhich exempts most payments for such insurance from both income and payroll taxesdampens incentives for cost control because it is open-ended. Those incentives could be changed by replacing the tax exclusion or restructuring it in ways that would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.
  • Many analysts would agree that more information is needed about which treatments work best for which patients and about what quality of care different doctors, hospitals, and other providers deliver. But absent stronger incentives to improve efficiency, the effect of information alone on spending will generally be limited.