As part of the legislative process, the Congressional Budget Office supplies the Congress with cost estimates for legislation, economic and budget projections, and other economic assessments. Information from the research community is an important element of CBO’s analyses. This is the third in a series of blog posts discussing research that would enhance the quality of the information that CBO uses in its work. (Earlier posts in the series discussed the need for new research in the areas of energy and the environment and of finance.) Please send comments to communications@cbo.gov.
CBO regularly provides information to the Congress about the effects of legislative proposals that would modify federal health care policies. The agency is on the lookout for new research about various topics in the area of health, including health care providers’ cost structures and the market for long-term services and supports (LTSS). CBO is currently working on those topics, and there are significant gaps in the relevant research literature.
CBO projects federal subsidies for health care by estimating enrollment in various forms of health insurance coverage, premiums for that coverage, prices and the use of medical items and services, and subsidies per person for different types of expenses. The agency uses a variety of methods and models to assess the ways individuals, employers, states, and suppliers of health care services would respond to changes in health care policies. Those models, in turn, require estimates of certain parameters to project how equilibrium prices, premiums, or the use of services would change.
CBO relies on its own analyses and on estimates from the relevant research literature to inform its estimates of those parameters. For instance, after reviewing evidence about how changes in health care providers’ payment rates affect the supply of their services, CBO updated its estimate of how the supply of services would respond to significant changes in certain payment rates to providers. There are many related areas in which better data and more research would enhance the agency’s work.
CBO recently analyzed several legislative proposals that would significantly change providers’ payment rates or health insurance coverage—areas that would benefit from further study. The proposals included implementing a single-payer health care system in the United States (CBO 2020), lowering the age of eligibility for Medicare (CBO 2022), and modifying the market for LTSS—which consists of health care and related services to help people who have functional or cognitive limitations perform routine daily activities over an extended period of time.
CBO’s future analyses of proposals involving similar issues would benefit from further study of how large changes in payment rates or insurance coverage would affect the supply of health care services. The empirical evidence is especially limited on two topics in particular: provider cost structures and the market for LTSS.
How Would Health Care Providers Respond to Shocks to Revenues or Costs?
CBO frequently analyzes policies affecting health care providers’ payment rates or their costs of providing care. For example, policies can directly affect providers’ revenues by changing the administered prices for services covered by Medicare or can change the amounts paid to providers by commercial insurers by altering the bargaining leverage between them.
There is a long-standing concern that reductions in providers’ payment rates would negatively affect patients’ quality of, and access to, care. Changes in access to care could, in turn, affect the federal budget. For instance, if a policy resulted in many providers leaving a market, then patients may receive less care or may receive care in different settings, or both. Those changes could affect federal spending. However, providers have many ways to adjust to changes in the payments they receive. Indeed, the research on how they have adjusted shows a range of responses—such as reducing the volume of care they provide, particularly for elective procedures (Clemens and Gottlieb 2014); reducing staffing (Wu and Shen 2014); or changing how they code diagnoses (Dafny 2005). A better understanding of the flexibility of providers’ cost structures, the major components of their fixed and variable costs, and how they respond to changes in revenues would enhance CBO’s estimates of the effects of certain legislative proposals.
CBO also evaluates policies that affect providers’ administrative burdens, such as streamlining requirements to obtain prior authorization for medical services. On the basis of recent research (Dunn et al. 2021), the agency estimates that lessening a provider’s administrative burden would tend to increase the amount of care the provider delivers, thereby increasing federal spending. Additional evidence would be helpful in refining that and other estimates.
How Would Changes in Medicaid’s Benefit for Long-Term Services and Supports Affect the Federal Budget?
Medicaid is the predominant payer for LTSS; roughly 65 percent of the costs of LTSS are paid by the federal government. In CBO’s projections, by 2030, Medicaid spending on home and community-based services amounts to $160 billion, and spending on institutional care amounts to $80 billion. Those projections reflect estimates of enrollment in Medicaid and growth in payment rates for LTSS providers, as well as an expectation of a continued shift in the delivery of care from institutions to community settings.
Studies have provided conflicting evidence regarding how policy changes, such as expanded Medicaid eligibility, affect the demand for care in nursing homes (Van Houtven et al. 2020, Grabowski and Gruber 2007). CBO’s analyses could benefit from additional research that evaluates how changes in federal policy would affect the share of the population with LTSS needs using institutional and home or community-based services. Deaths during the coronavirus pandemic were disproportionally high among residents of nursing homes. As a result, there was an increase in the uncertainty of CBO’s estimates of the desirability of institutional care, the number of institutionalized residents, and the available workforce.
CBO uses several models to estimate how changes in Medicaid eligibility, benefits, or payment rates would affect the federal budget. In addition, the agency is developing a microsimulation model to better represent the distribution of individual responses to policy changes—instead of an approach focused on average responses—and important relationships between key variables, such as the use of LTSS and income (Goda, Golberstein, and Grabowski 2011).
Depending on the details of the policy being analyzed, CBO’s models may account for the substitutability of paid and unpaid care, changes from private or state funding to federal funding, the supply of LTSS workers, and whether changes in the use of LTSS affect the use of medical services, among other factors. Additional research on those topics could enhance CBO’s estimates of the effects of legislative proposals related to LTSS.
Chapin White is CBO’s Director of Health Analysis. This blog post includes contributions from the following CBO staff: Carrie H. Colla (formerly of CBO), Scott Craver, Noelia Duchovny, Sean Dunbar, Tamara Hayford, Jeffrey Kling, Paul Masi, Sarah Masi, and Daria Pelech.