Congressional Budget Office (CBO) director Peter Orszag today continued his assault on the elephant in health policy’s living room, the 2.1 percent “excess cost growth” by which the nation’s total health spending growth has exceeded the growth in gross domestic product (GDP) since 1975. At a reporters’ briefing sponsored by Health Affairs, Orszag unveiled a new report on “The Long-Term Outlook for Health Care Spending,” warning that policymakers have “misdiagnosed” the biggest problem facing both Medicare and the health economy in general by overstating the projected impact of population aging and the impending retirement of the baby boom. 

Citing a recent article in Health Affairs, the CBO report concludes that population aging will have only “a modest effect not only on national health care spending but also on federal spending on Medicare and Medicaid,” confirming an earlier analysis in this journal by Princeton economist Uwe Reinhardt. The CBO report estimates that if current spending trends are projected out over a 75-year period, population aging would increase Medicare and Medicaid spending by only about 2 percent as a share of GDP, while excess cost growth would increase spending on the two largest public health programs by 10-12 percent. As a result, the CBO’s estimates of the long-term trends in Medicare spending under current law are about 50 percent higher than the Medicare Trustees’ estimate, which assumes long-term excess cost growth in Medicare of only 1 percent.

The overemphasis on aging is not the only disconnect in policymakers’ thinking about the problem of unsustainable health spending. While many pay lip service to the problem, Orszag and CBO colleague Philip Ellis charge in Nov. 1 (subscriber access) and Nov. 8 editorials in the New England Journal of Medicine that “discussions of Medicare and Medicaid policy as well as broader health care reforms have not seriously addressed the issue of how to slow growth in spending. Instead, recent debates have focused on how much to increase spending for the Medicare prescription drug benefit, how to expand coverage for children, and how to avoid scheduled cuts in Medicare physician fees.” And, of course, expanding coverage to 47 million uninsured U.S. residents is high on the agenda as well, Orszag noted at the reporters’ briefing, without minimizing the importance of this goal. 

Remarkably, the CBO director manages to impart his message without assuming the persona of a scold or a hair-shirt. As part of an intensive effort to beef up the CBO’s analysis of health policy issues and options, he has assembled an expert advisory board on which the modal estimate of current overspending on wasteful or low-value services is around the 30 percent level — consistent with the amount of overcare that can be inferred from the work of John Wennberg, Elliott Fisher, and colleagues at Dartmouth. With total health spending now rising past the $2 trillion mark, that 30 percent represents a very large opportunity. 

Uncertainty surrounds any predictions about how current law might be changed to bend the curve of future Medicare spending, although the CBO’s assumption is that changes will be made as excess cost growth eats ever deeper into the federal budget. This week’s report, though, offers a scenario that assumes that when excess growth reaches a point where it exceeds real growth in household income and begins to cut into nonhealth spending, households will dig in their heels and force stronger cost-cutting measures. The options outlined in the report are familiar and were outlined also in Orszag’s June testimony before the Senate Budget Committee: increased consumer cost sharing, renewed utilization controls, thinning of insurance benefits, and constraints on the use of expensive new technologies. 

Just as overuse of specialized, high-tech services looms large in the Dartmouth analysis of overspending, Orszag has focused on the importance of muscling up the evidence base for assessment of new technologies and the need to expand research on comparative effectiveness. The backlash against managed care, which effectively slowed spending growth in the 1990s, was in part a by-product of inadequate evidence to justify limiting access to services. Orszag decried the lack of investment in effectiveness research and stressed the need to develop new methods that could overcome the limits of traditionally preferred randomized clinical trials. Information technology by itself will not produce the kinds of savings that many have predicted, he said. But a well-wired system will help build that evidence base and provide a foundation for new incentive systems that have the potential to change provider and consumer behavior.

Don’t expect overnight results. But the time to get started, he said, is yesterday.