Approaches for Giving the President Broad Authority to Change Medicare

July 26, 2009

Yesterday CBO released a letter to House Majority Leader Steny Hoyer analyzing some possible approaches for giving the President broad authority to make changes in the Medicare program. Under those approaches, any changes the President decided to implement would be based on recommendations from an advisory council and subject to Congressional disapproval. Expanding the authority of the President to effect change in the Medicare program might lead to significant long-term savings in federal spending on health care but would also entail shifting some power from the Congress to the executive branch.

In the letter CBO reviewed draft legislation transmitted to the Congress by the Administration on July 17, 2009, titled the Independent Medicare Advisory Council Act of 2009. CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 20102019 period (with all of the savings realized in fiscal years 2016 through 2019) if the proposal was added to H.R. 3200, the Americas Affordable Health Choices Act of 2009, as introduced in the House of Representatives. This estimate represents the expected value of the 10-year savings from the proposal: In CBOs judgment, the probability is high that no savings would be realized, for reasons discussed in the letter, but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis.

The letter also identifies ways in which such proposals could be structured to garner significantly more savingsespecially in the years beyond 2019. In particular, if legislation were to provide an independent advisory council with broad authority, establish ambitious but feasible savings targets, and create a clear fall-back mechanism for instituting across-the-board reductions in net Medicare outlays, CBO believes such a council would identify steps that could eventually achieve annual savings equivalent to several percent of total spending on Medicare.