On Thursday, Douglas Elmendorf, director of the Congressional Budget Office (CBO), gave a talk entitled “Federal Health Care Spending: Why is it growing? What can be done about it?”
The CBO’s role is to provide “objective, nonpartisan information” to Congress, Elmendorf said. They estimate the effects of policy changes on the economy, but they make no recommendations on what Congress should do. “We’re in the pros and cons business,” he said. The CBO must balance policymakers’ legitimate interests with long-term interests. Where possible, the CBO also makes an effort to incorporate behavioral responses to legislation and how these behavioral changes will affect the economics of a policy change in the future. “We use whatever evidence that can be brought to bear.” According to Elmendorf, the CBO focuses its effort on “proposals that are most different from current law or attract the most attention.
In 2013, the federal government spent approximately one trillion dollars on health care. Federal health care spending is growing much faster than any other government spending at this point. “By 2038, major health care programs will be 8 percent of the nation’s GDP,” Elmendorf said, “rising from 2.8 percent in the past four years.” This growth is so rapid because the baby boomer cohort will start to collect Medicare and Medicaid in the coming years. Additionally, the rapid growth is partially caused by changes in federal subsidies and a rising cost of health care per person.
Future changes in health care coverage are also due to the new Affordable Care Act (ACA). “Most people, but not everybody, will sign up [for programs under the ACA],” Elmendorf said. The ACA will provide the most support for older people. Approximately 60 percent of the spending will go to people over the age of 65, and approximately 20 percent of the spending will go to blind and disabled citizens. Spending in Medicaid and Medicare has grown quite rapidly, but this growth has started to slow down from past projections.
There are a few ways in which the government could reduce health care spending. One possible way is to make people healthier. “Making people healthier means the government has to pay less in health care,” Elmendorf said. Healthier people would also, according to Elmendorf, work more, resulting in more tax income for the government. While people would cost less healthcare dollars per year, “they would live for more years,” he said. Using a case study of smoking taxes as an example, Elmendorf explained how the effects of increased longevity override the effects of lower per capita health care spending. Total spending would still increase over time.
Another possible way to reduce spending would involve reducing subsidies by narrowing eligibility for health care. The government could also reduce spending by shifting away from a “fee-for-service” model and instead move toward a bundle of payments method. The fee-for-service model provides an incentive for the doctors to charge a patient for additional services, while a bundling method “might provide the right incentives to hospitals,” Elmendorf said, to treat patients as effectively as possible. “[A bundling method] would only save the government money if the bundle cost less than the individual services,” he said, so careful analysis would need to be taken to best implement this plan.
In general, “specifics matter a lot [when dealing with health care],” Elmendorf said. Congress needs to pay attention to specific details rather than just broad parameters. While it is hard for lawmakers to know what will work, they strive for policies that reduce the growth of federal health care spending and improve the effectiveness of the national health care system. “Designing federal policies to achieve those goals is challenging,” Elmendorf said. “People are often most comfortable with the inefficient system they know.”