Administration Pushes Back Against Claim That Health Reform Would Increase Spending

In an effort to quantify savings that the Congressional Budget Office and the Office of the Actuary at the Center for Medicare and Medicaid Services (CMS) refuse to score, the administration’s Council of Economic Advisers released a new report today which finds that the health care legislation moving through Congress would reduce health care spending by 1 “percentage point over an extended horizon.” “This increase in the growth rate of GDP resulting from slowing the growth rate of health care costs translates into substantial increases in the median family income,” the report concludes.

“There is a lot of uncertainty,” Christina Romer, chairwoman of the Council of Economic Advisers, admitted on a conference call with reporters. But “the CBO scores for various things, especially for delivery reforms, turn out to be low compared to what actually happened.” “When you do these reforms in a unified comprehensive way…putting them all together you can actually have important synergies.” “Just based on the CBO scores, on the analysis that is out there, we feel comfortable saying that it will slow growth by 1 percentage point.” Romer also pushed back against conservative critics who cited the recent CMS report to argue that national health spending would increase under reform:

[There is a]difference between level effect and growth rate effect…expanding coverage to 30 million, will up the level of health care spending initially. You can’t increase coverage and pay less…I do think we need to acknowledge that the level spending rises initially…But we are talking about what happens over the longer haul… so the important thing is that we think it will slow the growth rate of cost by 1 percentage point per year and that’s based a lot on the CBO score…what happens at the end of the budget window and then what they’re projecting going out further…”

“Yes, in the short run you do spend more to insure a larger number of people,” Romer reiterated. But “the more fundamental issue is about the trajectory we are on. The people on the house floor who say that the status quo is better or can even be sustainable, have not looked at the numbers.” Currently, the United States spends 18% of its Gross Domestic Product (GDP) on health care, and is expected to spend nearly 34 percent of GDP on health care by 2040.

“What sounds like a small number is enormous when you look over time the effects that that has. So even though we will up the level of spending in the short run,” the 1 percentage reduction in growth after 5 or 10 years, “has a dramatic impact on where we are relative to otherwise we would have been.”

Romer also echoed yesterday’s floor speech by Sen. Sheldon Whitehouse (D-RI) who argued that policy makers will have to implement a range of policies to reduce growth. That’s the “importance of the Medicare advisory board,” Romer said. It’s “an institutional structure that keeps those ideas coming. We know this will be an evolving process…some will be dramatically good, others won’t work as well.” Romer also credited the 40% excise tax on high-cost plans and delivery reforms like bundling and Accountable Care Organizations for slowing the rate of growth.