This week, the new Director of the Congressional Budget Office (CBO), Doug Elmendorf, delivered important testimony to the Senate Budget Committee. His full, written presentation is available here.

Health policy expert Bob Laszewski helpfully noted at Healthcare Policy and Marketplace Review that, during the back and forth at the hearing, Elmendorf delivered these gems:

The cleanest and strongest lever that [the Congress has] for private health care [reform] is the tax exclusion. Many analysts would agree that adjusting that exclusion can be very beneficial for health insurance coverage and for ensuring a more efficient health care system…. In the public sector…the comparably clean and strong lever would be increasing cost-sharing by Medicare beneficiaries.

It’s not every day that Congress gets such clear and sound advice.

In his written statement, Elmendorf made similar points which were just as striking. He said a consensus has emerged among analysts that the country needs to move away from “fee-for-service” insurance, which is the dominant form of coverage provided in Medicare. Fee-for-service rewards volume, leads to fragmented and uncoordinated care, and undermines incentives for efficient delivery of services.

He also said the current tax preference for employer-paid health insurance “dampens incentives for cost control because it is open-ended.” Replacing or restructuring the tax preference “would encourage workers to join health plans with higher cost-sharing requirements and tighter management of benefits.”

Fixing heath care in the United States to broaden coverage and slow the pace of rising costs mainly requires getting the financial incentives right. Today, through the tax law and public programs, the federal government is providing a strong incentive for more expansive insurance and ever-increasing use of services of marginal value. The first order of business in reform should be to fix existing public policy to encourage more cost-conscious consumption.

That will not be easy for Congress to do. No politician wants to begin reform by forcing constituents to face financial trade-offs. But, as Elmendorf’s testimony made clear, do it they must—else we are headed toward unbearable financial burdens for both the government and households.

The full hearing can be viewed by clicking on the webcast listed for February 10th at the Senate Budget Committee’s website, available here.


February 13, 2009