Today, in testimony before the Senate Budget Committee, Congressional Budget Office chief Douglas Elmendorf suggested that the health care legislation before Congress does not achieve “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,” Elmendorf said:

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 judgment, would by itself increase the federal responsibility for health care that raises federal spending on health care.

Part of Elmendorf’s message is painfully obvious: investing in health care reform by providing Americans up to 400% of the federal poverty line with subsidies is going to cost the federal government a good deal of money — somewhere between $1 trillion and $1.5 trillion, to be exact. Progressives have always argued that in order to reduce the growth of health care costs in the long term and avoid the kind of catastrophic spending levels that could swallow-up our entire economy, we’re going to have to bring everyone into the health care system. As Elmendorf points out, that shows up on the federal books.

But the budget outline that passed the Senate Budget Committee requires a fully funded health reform bill, and both the Senate Finance Committee and the House Ways and Means Committee are proposing different options to pay for reform and ensure that the bill does not add to the deficit. For his part, Elmendorf, is isolating the ledger of the federal government from the context of the entire system. In other words, since many of the savings from reform won’t be reflected in the federal budget, Elmendorf does not consider them. But modernizing the health care system (implementing electronic medical records, health information technology) and reforming the way Medicare and Medicaid reimburse providers will save money for the system as a whole. As Melinda Beeuwkes Buntin and David Cutler pointed out in a recent analysis, these savings can total to some $2 trillion. In fact, even the industry is on record as saying we can reduce the growth rate in annual health spending by 1.5 percentage points a year over the next 10 years, lowering spending overall health care spending by $2 trillion (this represents a 20 percent reduction in projected growth.) Elmendorf is looking at the trunk of the elephant and not the whole.

Still, what’s most peculiar about the Elmendorf statement is the suggestion that lifting the tax exclusion for employer-sponsored health benefits is one of the few ways to bend the cost curve. Technically, such an approach would save the government a good deal of money, but would it bend the curve? As Elise Gould points out in a brief for the Economic Policy Institute, there is no evidence that the exclusion — or this idea that health care costs are increasing because Americans are “cavalier” about the price of health care — “is a primary driver of price increases in health care. In fact, the tax exclusion has been around for decades, even during periods of low health care inflation.”

In testimony before the House Ways and Means Committee, Elmendorf walked back his comments, saying that in some ways federal spending will increase and in some ways it will decrease. When pressured by the Republicans on the committee, Elmendorf did not directly confirm his accusations.

This afternoon, during an appearance on Fox News, Senate Minority Leader Mitch McConnell (R-KY) promised Republicans were “doing everything we can to defeat [health care reform],” before suggesting that the Democrats’ health care effort would “cut Seniors,” undermine “small businesses” and “destroy the finest health care system in the world”:

They are going to pay for this plan by cutting Medicare, that is cutting Seniors, and raising taxes on small businesses….It is a very bad program that I think is not going to pass the Senate. We are doing everything we can to defeat it.

Watch it:

All of the bills before Congress help finance health care reform by eliminating wasteful spending within the Medicare and Medicaid programs, something McConnell supported in 1997. In fact, Republicans have been such enthusiastic proponents of cutting Medicare spending that in 1995, they sought to cut 14% from projected Medicare spending over seven years and force millions of elderly recipients into managed health care programs or HMOs. As Speaker of the House Newt Gingrich admitted, “We don’t want to get rid of it in round one because we don’t think it’s politically smart,” he said. “But we believe that it’s going to wither on the vine because we think [seniors] are going to leave it voluntarily.”

Rather than “cut Seniors,” as the Republicans proposed in the 1990s, this bill would eliminate overpayments and slowly phase in payment adjustments that encourage providers to deliver quality care more efficiently; it cuts out the waste, while patching up shortages. For instance, the legislation increases seniors’ access to rural care by increasing funding to rural providers, improves the affordability of Medicare by expanding the number of seniors eligible for assistance with premiums and co-pays, and helps seniors afford prescription drugs by filling in the drug donut hole in Medicare part D.

The cuts are designed to reduce insurance company subsidies and reduce unnecessary hospital readmissions. Some of these cuts have been endorsed by the health insurance industry and they’re also the kinds of proposals that McConnell voted for as part of the Balanced Budget Act of 1997. That act decreased Medicare spending by 12.7% over 10 years and instituted the very same kind of payment updates that McConnell is now condemning.

McConnell also repeated the false claim that financing health care reform by taxing Americans in the top income brackets (families with incomes above $350,000) would disproportionately impact small businesses. So what are we left with? Well, amongst the gross misrepresentations and outright lies, McConnell floats a ‘Republican alternative‘ that would do nothing to control health care spending or expand access. He would take Americans out of the employer-based system and give them an inadequate tax credit to purchase individual coverage. To help lower skyrocketing health care costs, he would tackle the great problem of malpractice lawsuits (the total cost of malpractice constitutes just 0.46 percent of total health care expenditures). This isn’t any kind of alternative for reform, “it’s a strategy slow this sausage-making process down” and as McConnell explained, “defeat it.”

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Yesterday, three Democrats on the Senate Finance Committee — Sens. Chuck Schumer (D-NY), Robert Menendez (D-NJ), and Debbie Stabenow (D-MI) — announced a plan to make health insurers absorb somewhere between $75 billion and $100 billion of the cost of reform by taxing insurer profits. A Republican on the committee, Sen. Olympia Snowe (R-ME) — who is scheduled to meet with the President today — “said she would also support such a tax,” Congressional Quarterly is now reporting:

Schumer and others said they did not know how they would prevent insurers from simply passing the tax on to their customers in the form of higher premiums. But the point, they said, is to make the industry contribute financially toward an overhaul that is expected to result in insurers gaining millions of new customers…. “We need the insurance industry to step up to the plate and be part of the solution,” Schumer said at a news conference. “It makes sense that private insurance companies, who are going to gain 40 million new customers as part of health reform, should pay their fair share.”

Insurers that operate in the unregulated individual market are infamous for denying coverage to individuals with pre-existing conditions, rescinding coverage, offering subprime plans and jacking up premium rates. In an interview with PBS’s Bill Moyers last Friday, former health insurance executive Wendell Potter explained how insurers are primarily driven by profits and generally seek to “drive down” costs by refusing to insure “unhealthy people” — a tactic borne out by the fact that 47 million Americans currently lack health insurance. “Big for-profit insurers have hijacked our health care system and turned it into a giant ATM for Wall Street investors,” Potter, said.

In fact, insurance is perhaps the only business that earns more money by offering less product and excluding customers. Since this business model has contributed to the problem of the uninsured and the costs now associated with providing care to those who were denied coverage, insurers are responsible for contributing to the costs of reform. As Schumer points out, “it makes sense that private insurance companies, who are going to gain 40 million new customers as part of health reform, should pay their fair share.” Insurers have agreed to some concessions — agreeing to accept everyone who applies for coverage, ending the industry practice of denying coverage to individuals with pre-existing conditions, (which would cost approximately $100 billion) — but the new infusion of customers would offset any profit loss, Schumer is arguing.

The challenge is figuring out how to tax insurers while ensuring that they don’t pass on the increase to consumers in the form of higher premiums. Competition within the Exchange (some of it hopefully coming from a robust public option) might pressure insurers to maintain or lower premiums, but you can also get at profits by requiring insurers to spend a higher percentage of their revenues on providing medical care, instituting certain administrative savings (standardization of billing forms, greater efficiency, better use of health information technology), or capping CEO salaries.

After all, if the federal government is investing some $700 billion to provide people with subsides to buy (mostly) private coverage from the Exchange, then it should have a say in how the industry does business. Why should the CEO of UnitedHealth Group receive $1.1 billion in stock options (as he was in 2006), Cigna’s Health Insurance CEO H. Edward Hanway earn a total compensation of $30,016,000 or Aetna CEO Ronald Williams make some $38,860,000?

The point is, for an industry that is counting on government reform to save its failing business model, ponying up some $100 – $200 billion to cover the cost of reform is still a sound business decision.