CBO Found Little Savings In Obama’s MedPAC Proposal, Now What?

piggy-bank-on-money-md2After the CBO’s Douglas Elmendorf suggested that the current health care bills do little to control long-term health care spending, the administration doubled down on its MedPAC-on-steroids proposal. Establish a panel of medical professionals, allow the new committee to push through MedPAC like payment reforms without too much Congressional interference and you ‘bend the cost curve,’ the administration enthusiastically argued.

But on Saturday, the CBO scored the President’s Independent Medicare Advisory Council (IMAC) proposal and identified few actual savings:

CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 2010–2019 period (with all of the savings realized in fiscal years 2016 through 2019)….In CBO’s judgment, the probability is high that no savings would be realized, for reasons discussed below, 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 estimate does not come as a great shock. As Jonathan Cohn explains, as far as the CBO is concerned, “there are a few changes guaranteed to bring down costs significantly over the long run: Change the tax exclusion for group health insurance, so that employers and employees alike have less incentive to purchase generous insurance; write into the law some kind of budget limit on federal health spending, perhaps in the form of automatic spending reductions that go into effect should federal spending get too high; force changes in the way health care is delivered, by pushing doctors into group practices that pay based on salary; change Medicare so that even senior citizens with generous Medigap plans have to pay higher cost-sharing.”

Cohn then suggests that the administration can either strengthen the proposal to achieve a higher CBO score or “ignore the CBO, given the inherent uncertainty in these projections, and to push ahead with the reform plans as they are already written.” Another alternative would be for the White House to produce its own report, in which former CBO chief Peter Orszag could explain why he believes IMAC is such a “game changer” and how the CBO has “a bias toward exaggerating costs and underestimating savings.” In other words, Orszag could defend the proposal and explain how it would produce system-wide savings.

Or, alternatively, as Cohn notes, the administration can design what David Cutler and Judy Feder have called a “fail safe option” that would kick in if productivity improvements, investments in health information technology and payment system reforms fail to slow the growth of health care spending and lower costs. Here is Feder explaining the proposal on CSPAN:

A commission would monitor health care spending and, if we’re spending more than a set target on health care, the panel would work to control spending by placing limits on Medicare spending, and controlling private spending. If the “trigger” is pulled, the actions would be self-executing (unless Congress overturns them), selected by experts (whether a commission or the Secretary of HHS) from a menu of pre-determined, scorable options, and consistent with savings throughout the system (not just shifting costs from government to private payers). Some in Congress may resent the sudden loss of authority, but this kind of mechanism would free the board from the politics of the moment, score better with the CBO (since we are now using a specific target of growth) and could even provide some much needed cover to the Blue Dogs who are oh-so-concerned about deficits and out of control health care spending.