Free Markets, Free People


CBO: Busting The Health Care Savings Lie

Does anyone know who Dr. Doug Elmendorf is? He’s the director of the Congressional Budget Office. And today, in testimony before the Senate Budget Committee he answered a few questions from Sen. Kent Conrad (D-ND) about the supposed great savings the country would reap under the planned Democrat “health care reform” bills under consideration by Congress.

Here it is uncut, unfiltered and unedited [emphasis mine]:

Conrad: Dr. Elmendorf, I am going to really put you on the spot because we are in the middle of this health care debate, but it is critically important that we get this right. Everyone has said, virtually everyone, that bending the cost curve over time is critically important and one of the key goals of this entire effort. From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?

Elmendorf: No, Mr. Chairman. 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. And on the contrary, the legislation significantly expands the federal responsibility for health care costs.

Conrad: So the cost curve in your judgement is being bent, but it is being bent the wrong way. Is that correct?

Elmendorf: The way I would put it is that the curve is being raised, so there is a justifiable focus on growth rates because of course it is the compounding of growth rates faster than the economy that leads to these unsustainable paths. But it is very hard to look out over a very long term and say very accurate things about growth rates. So most health experts that we talk with focus particularly on what is happening over the next 10 or 20 years, still a pretty long time period for projections, but focus on the next 10 or 20 years and look at whether efforts are being made that are bringing costs down or pushing costs up over that period.

As we wrote in our letter to you and Senator Gregg, the creation of a new subsidy for health insurance, which is a critical part of expanding health insurance coverage in our judgement, would by itself increase the federal responsibility for health care that raises federal spending on health care. It raises the amount of activity that is growing at this unsustainable rate and to offset that there has to be very substantial reductions in other parts of the federal commitment to health care, either on the tax revenue side through changes in the tax exclusion or on the spending side through reforms in Medicare and Medicaid. Certainly reforms of that sort are included in some of the packages, and we are still analyzing the reforms in the House package. Legislation was only released as you know two days ago. But changes we have looked at so far do not represent the fundamental change on the order of magnitude that would be necessary to offset the direct increase in federal health costs from the insurance coverage proposals.

Conrad: And what about the Finance Committee package, as it stands?

Elmendorf: I can’t speak to that Mr. Chairman. We have been working with the Finance Committee and the staff for a number of months on proposals that they have been addressing. But our consultations with them have been confidential because they have not yet released the legislation, and I don’t want to speak publicly about that.

Conrad: All right. In terms of those things that are public from other plans, what are the things that are missing that in your judgement prevent a bending of the cost curve in the right way?

Elmendorf: Bending the cost curve is difficult. As we said in our letter to you, there is a widespread consensus, and you quoted some of this, that a significant share of health spending is not contributing to health. But rooting out that spending without taking away spending that is beneficial to health is not straightforward.

Again, the way I think experts would put it – the money is out there, but it is not going to walk in the government’s door by itself. And devising the legislative strategies and the regulatory changes that would generate these changes is not straight forward. But the directions that have widespread support among health analysts include changing the preferential tax treatment of health insurance. We have a subsidy for larger health insurance policies in our tax code, and that like other subsidies encourages more of that activity. Reducing that subsidy would reduce that. And on the other side, changing the way that Medicare pays providers in an effort to encourage a focus on cost effectiveness in health care and not encourage, as a fee for service system tends to, for the delivery of additional services because bills for that will be paid.

So here is the opinion of the director of the organization that both sides like to quote and use as a definitive source saying that what has been legislatively put on the table will not – not – bend the “cost curve” down, but, will instead bend it upward. It does not – not – in fact accomplish the goal of “cost savings” in terms of health care spending.  Anyone with the brain of a glow worm who had taken a look at the proposals and the promises knew it was a large load of pony pellets.   Those on the side of “belief and faith” (and hopeychangitude) chose to believe in the politician’s promises and have faith in their truth.

Unfortunately for them, Dr. Elmendorf apparently deals in facts and figures.

The last part of the questioning is equally important.  Elmendorf discusses the funding mechanism (along with the eternal promise of corralling “waste, fraud and abuse”). Some savings will come from eliminating waste, fraud and abuse (all of which are rampant in both Medicare and Medicaid and politicians have vowed to end for decades), but not enough to fund the rest.

So they’re left with few options besides a general tax increase. Those options, per Elmendorf include taxing health care benefits and reducing the cost of Medicare by changing how providers are paid (i.e. cutting payments and prohibiting procedures Medicare doesn’t feel are necessary to treatment – the very accusation the government health care proponents constantly level at private insurance).  The first isn’t very palatable politically (and they’d have to exempt unions which would be very unpopular politically) and the second would most likely find a back lash among seniors.  So the fall back position is “tax the rich” – an unstable revenue stream (once the rich figure out how to dodge it).

Anyway, the Democrat’s “cost savings” narrative is again busted. Not only will the proposed legislation not save money, it will cost us a bundle. As I said yesterday, I believe, when I posted the chart with the curve of proposed health care spending under the Democrat bills, the curve isn’t going to go down.

Today the CBO validated that point.

~McQ

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8 Responses to CBO: Busting The Health Care Savings Lie

  • What never seems to be addressed are the costs that are already “misdirected” like the way Medicare payments not covering the full cost of a doctor’s office so it is “offset” by payments from other patients.
    The government has more often then not been on the winning side of those kinds of “offsets” but when you start paying all the bills (i.e. a takeover of the medical industry), there is nobody left of “offset” your costs, except of course the taxpayer.

  • Simple solution regading the matter of cost reductions  ..  stop all medical research.
    You don’t need a R&D budget for medical research when you’re not going to use it.
    Any new innovation will extend the life of users of the health care system, which in turn will raise not just the continued cost of the surviving patient, but additional costs of other like patients.
    As a simple matter of economics, there would be no need for a R&D budget that would lead to the extension human life because it would raise costs on two fronts.

    • Well, you OBVIOUSLY can’t mean R&D funding for fetal stem cell research!  Surely.  You big silly.

  • Nah, what do they know – someone else poohpoohed a CBO finding a week or so ago that disagreed with their position.
    I mean, the CBO, who the hell are THEY anyway.  President Ospama says it’ll all be moon ponies for everyone, and Joe Biden says we have to spend more to keep from going into bankruptcy which is absolutely certain to be caused by this sudden health care crisis that appeared recently (would that be the Bill the House and Senate are proposing?  no no no!  It’s the health care crisis…it’s there!!! trust us!!!! it’s a crisis and WE MUST DO SOMETING ABOUT IT NOW!)

  • Okay, that can stay.

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