Health Care Forecasting Conference James Baumgardner Deputy Assistant Director for Health Policy Congressional Budget Office February 19, 2009

Congressional Budget Office Key Issues in Analyzing Major Health Insurance Proposals Budget Options Volume 1: Health Care

Scope of the “Key Issues” Volume Considers the types of issues that would arise in estimating the effects of proposals to:  Provide subsidies for insurance  Mandate that individuals have insurance  Require firms to offer health insurance to their workers or pay a fee (“play or pay”)  Shift toward individually purchased coverage  Provide access to Medicare or establish a “Medicare- for-all” single-payer arrangement Does not estimate specific proposals or make recommendations.

Key Issues – Chapters  Background on Current Coverage & Spending  Approaches for Reducing the Number of Uninsured  Factors Affecting Insurance Premiums  Policies Affecting the Choice of a Health Plan  Factors Affecting Supply & Prices of Services  Administration & Effects on Other Programs  Changes in Health Habits & Medical Practices  Budgetary Issues & Macroeconomic Effects

Approaches for Reducing the Number of Uninsured  Three key approaches to increasing coverage rates: –Subsidies –Mandates –Facilitating enrollment  Key conclusions: –Premium subsidies or mandates, alone, are insufficient to achieve universal coverage –Combination of approaches needed to reach near- universal coverage

Approaches for Reducing the Number of Uninsured: Factors Affecting Costs of Subsidies  Costs are largely driven by the number of eligible people and the average subsidy amount. –Most subsidies could go to those who would have purchased insurance anyway (“buying out the base”). –People or employers may reduce payments for insurance in order to take advantage of public subsidies (“crowd-out”). For every 100 kids who gain coverage as result of SCHIP, private coverage falls by 25 to 50. –“Buying out the base” and “crowd-out” are difficult to prevent. –To reduce costs, subsidies could be limited to low-income. 82% of uninsured have income < 300% of poverty But 102 million insured also have income < 300% of poverty

Approaches for Reducing the Number of Uninsured: Other Factors Affecting Costs of Subsidies  For the same costs, refundable tax credits would be more effective at increasing coverage than tax deductions and exclusions. –21% of uninsured do not have any income tax liability. –Effectiveness depends on whether people receive them before premiums are due.  Spending programs may provide subsidies more quickly, but the application process can be more burdensome for some people than filing a tax return.  Even if subsidies covered individuals’ entire share of premiums, millions would remain uninsured.

Approaches for Reducing the Number of Uninsured: Other Approaches  Mandate individuals to obtain insurance or employers to offer insurance. –Compliance ranges from 60% to 90% in variety of programs. –Effectiveness depends on scope, enforcement, & penalties. Income tax compliance ranges from 99% for wages to 46% for harder-to-detect self-employment income.  Automatically enroll eligible individuals. –401(k) plans: speeds enrollment among young, low-income. –Medicare Part B: may contribute to high participation rates.

Key Issues – Main Conclusions  Policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal and total costs for health care.  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 spending.

Health Options Volume  Comprises 115 discrete options to alter federal programs, affect the private health insurance market, or both  Includes many options that would reduce the deficit, some that would increase it  Draws from extensive conversations with Congressional staff, academic studies, proposed budgets, health experts, previous legislation

CBO Baseline Not a forecast of the future. Assumes that current law and policies remain unchanged. Consistent with CBO’s job of scoring proposals relative to current law. Special treatment of discretionary spending.

CBO Baseline Assumptions Tax provisions expire as scheduled. No modification of the Alternative Minimum Tax. Discretionary spending grows with inflation. No fix of Medicare physician payment.

Budget Outlook Under Current Policies (In billions of dollars)

Budget Outlook Under Current Policies (As a percentage of GDP)

The GDP Gap, Sources: Congressional Budget Office; Department of Commerce, Bureau of Economic Analysis Note: The GDP gap is the difference between real (inflation-adjusted gross domestic product and its estimated potential level (which corresponds to a high level of resource—labor and capital—use). Data are quarterly and are plotted through the fourth quarter of Percentage of Potential GDP

The Total Deficit or Surplus as a Share of GDP, 1970 to 2019 Percentage of GDP Source: Congressional Budget Office

The Budgetary Effects of Policy Alternatives Not Included in CBO’s Baseline: January 2008 Projections (In Billions of Dollars) Increase Regular Discretionary Spending by the Growth Rate of Nominal GDP Baseline Reduce Number of Troops to 30,000 by 2010 Source: Congressional Budget Office Note: Additional debt service included in alternatives. Index AMT and Extend Expiring EGTRRA and JGTRRA Tax Provisions Index AMT

The Budgetary Effects of Policy Alternatives Not Included in CBO’s Baseline (January 2009) (In Billions of Dollars) Baseline Reduce Number of Troops to 30,000 by 2011 Source: Congressional Budget Office Note: Additional debt service included in alternatives. Extend EGTTRA, JGTRRA and Other Tax Provisions and Index AMT Index AMT Replace SGR with MEI

Medicare Baselines: Net Outlays, Average Annual Increase: 6.9%

Medicaid Baselines: Mandatory Outlays, Average Annual Increase: 7.3%

Projections of Federal Spending on Medicare, Medicaid and Social Security Source: Based on projections in CBO’s “The Long-Term Budget Outlook,” December Note:Assumes that federal spending, as a percentage of Gross Domestic Product, remains at its post-1962 historical average. Amounts for Medicare are net of beneficiaries’ premiums. = 119 %