2. Pilot projects are more likely than demonstrations to yield large-scale improvements because pilot projects, if they prove successful, can be implemented nationwide without congressional action.


3. Moreover, CBO’s scoring of the Affordable Health Care for America Act (see Box 5-1) assumes that major spending provisions (such as constraints on Medicare payment rates) “are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation” (Congressional Budget Office 2009f:13).


4. For this purpose, health care spending has to be adjusted for changes in the age and gender composition of the population. Thus, for example, even with effective discipline on costs, spending will grow faster as the population becomes older on average.


5. See Burman (2008) for a discussion of using the value-added tax as a financing source for health care. (See Chapter 8 for a discussion of the value-added tax as a general revenue source.)


6. The rate of growth of health spending in the United States is nearly the same as that of European countries. Between 1997 and 2003, for example, the 15 original members of the European Union (EU) experienced a 4.2 percent increase in health spending, compared with an average GDP growth of 2.4 percent. Over the same period, U.S. health spending grew 4.3 percent, while GDP grew 1.9 percent (Antos and Rivlin, 2007a).


7. The Congressional Budget Office (2009c:27) also notes that Medicare began paying hospitals a predetermined rate for each admission under a “prospective payment system” in 1983.


8. For example, see Smith et al. (2009) for a discussion of the interrelationship between technology and health insurance and the possibility that insurance coverage may not continue to stimulate technological change to the extent that it has in the past.


9. Medicaid pays for cost sharing, premiums, and some treatments and services that Medicare does not cover, but it is a secondary insurer for this group.


10. An alternative approach to calculating the cost of this tax expenditure (Joint Committee on Taxation, 2009) goes beyond conventional estimates by looking at the impact of the employer-sponsored health care exclusion on payroll taxes and assuming certain behavioral responses by taxpayers. This analysis puts income and payroll tax revenue losses in 2008 at $133 billion and $94 billion, respectively.


11. The sustainable growth rate formula stands as an example of a budget cap that has not worked. Created by Congress to limit the growth of Medicare payments for physician services, the formula ties physician payments to economic growth. Since Medicare physician spending has been growing significantly faster than the economy, the formula consistently calls for cuts in physicians’ fees. The magnitude of these reductions has proven to be politically untenable, however, and Congress has repeatedly used its authority to override the sustainable growth rate formula.


12. With vouchers, private plans would have a relatively fixed budget and have to manage care as efficiently as possible. The financial risk is borne by the plans: if there are insufficient funds available, beneficiaries might get less care or poorer quality care.


13. This discussion refers to rates of growth of aggregate spending, rather than the excess cost growth measure used at the beginning of this chapter.


14. For example, people in the lower tax brackets receive cash savings from the exclusion valued at between $600 and $3,000 per year, while people with annual incomes of more than $100,000 obtain average cash savings of between $4,000 and $5,000 (Joint Committee on Taxation, 2008b:5).


15. The Medicare Participating Heart Bypass Center demonstration project found that bundled payment was associated with a 10 percent reduction in spending among Medicare bypass patients (Cromwell et al., 1998). However, another bundled payment trial implemented in the Medicare system found no effect on costs for patients undergoing cataract surgery (Abt Associates, 1997).

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