Medical Device Daily Washington Editor

The Congressional Budget Office has finally scored the America's Healthy Future Act of 2009, drafted by the Senate Finance Committee, and CBO's scoring shines a much kinder light on the bill than on other measures making the rounds on Capitol Hill. The problem is that CBO fails to address a number of perennial cost issues, including that public health programs have in the past been plagued by higher-than-anticipated costs, not to mention the difficult-to-swallow assumption that Congress will finally allow Medicare payments to physicians under Part B to be trimmed under the sustainable growth rate mechanism (SGR).

According to the CBO report, the bill as currently written would cut the federal budget deficit by $81 billion over the first ten years after the bill's enactment. How much this would shave off the deficit is difficult to gauge, but CBO recently scored the deficit for 2009 at $1.4 trillion, a near-$1 trillion increase from last year's deficit of roughly $460 billion.

Getting to that $81 billion in savings over ten years requires that a number of factors fall into place. As has been widely reported, the bill would cause the federal government to pay out "$829 billion in credits and subsidies provided through" healthcare insurance exchanges, expansions for Medicaid and the Children's Health Insurance Program, and tax credits for small employers under the employer mandate.

This sum would be offset by a tax on high-premium plans, projected at $201 billion, as well as by other measures estimated to increase federal revenues "by $196 billion over that same period." However, CBO declines to calculate the impact on gross domestic product engendered by the withdrawal of almost $400 billion from the economy. CBO acknowledges that the estimates are "subject to substantial uncertainty."

The history of routine underestimates of the cost of public health programs does not help the CBO's case. Medicare, for instance, cost about $3 billion in 1965 and was projected at that time to run to $12 billion in 1990, after adjusted for inflation. The actual sum spent on Medicare in 1990 was $107 billion. Medicaid projections have similarly been frustrated by reality.

CBO states that the federal share for Medicaid, which currently averages about 57% for all states, would likely rise to 90%, and the projected increase in federal spending for Medicaid and the Children's Health Insurance Program is estimated at "$33 billion over the 2010-2019 period" for an average of $3.3 billion a year.

This is based in part on a boost in Medicare eligibility from 100% of the federal poverty level to 133%. The difficulty here is that Medicaid spending was reported by CMS to be $340 billion in 2008 and CHIP spending currently runs at $14 billion annually. Leaving out CHIP, this requires the assumption that growth in federal Medicaid spending can be held to less than 10% annually despite that the federal government's share of Medicaid is projected to grow by 63%.

The history of Medicaid growth is not exactly encouraging on this point. The Kaiser Family Foundation (KFF; Menlo Park, California) reported in 2007 that Medicaid expenditures rose from $205 billion in 2000 to $315 billion in 2005, "an average annual increase of 8.9%" according to a report published by KFF on the program. Spending actually contracted in 2006 thanks in part to a vigorous economy, but shifting of Medicaid drug spending to Medicare – thanks to the Part D prescription drug program – accounted for a hefty share of that change. KFF asserts in its report that per-capita spending on acute care in the program was exceeded by private coverage healthcare spending for the period 2000-2006.

Not everyone agrees with that last statement. In a July 2009 report, Jeffrey Anderson, PhD, of the Pacific Research Institute (San Francisco) argues that Medicaid spending has routinely grown faster than private insurer spending has, stating that Medicaid "now costs $1,098 more per patient ... than all healthcare in America" outside of Medicare and Medicaid. Anderson also notes that 32% of spending by Medicaid beneficiaries was covered by sources other than Medicaid and hence is not covered in government numbers.

Another problem for this bill, as well as the other healthcare bills, is that it purportedly does not allow illegal aliens to enroll in government-subsidized plans, but does not allow administrators to require proof of citizenship for enrollment. This fact has engendered criticism that proponents are na ve to suppose that illegal aliens will voluntarily abstain from enrolling.

The report's summary states that the projections "assume that the proposals are enacted and remain unchanged throughout the next two decades," which CBO acknowledges "is often not the case for major legislation." CBO offers SGR as an example of this, and concludes, "the long-term budgetary impact could be quite different if those provisions were changed or not fully implemented."

The device industry has at least rallied some support against the $40 billion tax on device makers proposed in the Finance Committee bill, and that support lends credence to the assertion by former House Speaker Tip O'Neill that "all politics is local."

In an Oct. 8 letter, a group of 14 senators, all Democrats, urged leading members of the Senate to "moderate the tax proposal in order to prevent" projected impacts on employment in the industry. The letter, addressed to majority leader Harry Reid (Nevada), Finance Committee chairman Max Baucus (D-Montana), and Iowa Democrat Tom Harkin, who now chairs the Senate Health, Education, Labor and Pensions Committee, adds that those jobs, "which pay an average of 15% more than the average manufacturing job, are critical to our states' economies." The letter bears the signatures of both senators from several states, including Minnesota, Massachusetts, and California.

Mark McCarty, 703-268-5690;