CBO Report Ignores Full Savings in Health Reform

By Joel Wendland

Health reform advocates pushed back this weekend against a new insurance industry and congressional Republican offensive to block or slow down President Obama's push to overhaul health care by pointing out that the most important accomplishment of reform would be to relieve in the financial burden the current broken health system has on the economy.

In a teleconference with reporters last Friday, Harvard economist David Cutler, co-author of a June 2009 report demonstrating that health reform along the lines proposed by President Obama could save as much as $1.5 trillion over a 10 year period, dismissed the idea that health reform would be too costly to implement. Cutler referred to a Congressional Budget Office (CBO) report released last week that claimed the health reform plan working its way through Congress would cost $1 trillion.

"Everything that we know of suggests that by changing the nature of the medical care system, we can have an enormous impact on the growth of cost, both in the short term, and in the longer term," Cutler said. "I think a lot of the pessimism that we're seeing is a look at a short-term thing, rather than a long-term look at what health care reform can do."

The Harvard economist further explained that the CBO report simply failed to report the full savings that health reform could provide over time. The health reform proposals would help reduce the cost of health care spending and payments, but they would also "change the underlying dynamics of the medical system so that it is less costly over time by keeping people of hospitals and from falling through the cracks."

Simply put, right now tens of millions of people lack adequate access to medical care. This means that most of these people are forced to wait until dire situations to see a doctor or go to a hospital – when care is the most expensive and the less effective, and which is often covered by public programs. The basic theory of the health reform model is that if everyone has access to health care all along, they will be generally healthier and will tend to need expensive treatments far less than currently is the case.

This systemic change would bend the cost curve in a manner that may not be precisely predictable precisely and apparently escaped the attention of the CBO report authors, Cutler suggested, but the "evidence is increasing that the amount to be saved and that we can save is enormous."

Even CBO Director Douglas W. Elmendorf admitted the CBO's report was incomplete. In a blog post at the CBO's website, on July 18th, Elmendorf wrote, "The figures released yesterday do not represent a complete cost estimate for the legislation." The report was limited to federal revenue and payments.

Linda Blumberg, a senior health policy analyst at the non-partisan Urban Institute, pointed to the competition in the insurance market that the proposed public option would generate as being the key to cost-savings that would result from reform.

"There is a great potential for the public plan option to have very significant cost containment impacts on private health insurance markets, both in terms of the level, and also potentially lowering the rate of growth over time right now, private health insurance markets are not competitive today," Blumberg said.

High costs today result from the "a tremendous amount of consolidation in both private health insurance markets and provider markets" today, she noted. "The public plan actually has leverage that provider insurers don't have today. The plan will be between private plans and Medicare and will lower the cost of premiums. Insurers will respond to the presence of competition by becoming more aggressive and innovative," Blumberg asserted.

Additional savings in the hundreds of billions will be found by reducing government overpayments to private insurers that plague the system today, said Judy Feder, senior fellow at the Center for American Progress Action Fund. "Changes in medical system and public option will push health care system in direction of greater value."

In his weekly address, July 18, President Obama agreed with the line of thinking offered by these experts. "Our proposals cut hundreds of billions of dollars in unnecessary spending and unwarranted giveaways to insurance companies in Medicare and Medicaid," he explained. "They change incentives so providers will give patients the best care, not just the most expensive care, which will mean big savings over time."

The President added that he would refuse to support a final reform package that added to the deficit. He further rejected the claim that reform would limit people's choices about the care they would receive. "I don’t believe that government can or should run health care. But I also don’t think insurance companies should have free reign to do as they please," he said.

The push to slow down or block reform will only harm working families caught in the cycle of high costs and inadequate access to care, the President stated. "The opponents of health insurance reform would have us do nothing. But think about what doing nothing, in the face of ever increasing costs, will do to you and your family."

To ensure that reform would be fully paid for in the short-term, the health reform bill now being considered in the House includes a proposed surcharge on the wealthiest one percent of Americans.