Honorable Steny H. Hoyer Page 2 that imposes ongoing pressure to increase efficiency over time—particularly, but not exclusively, in the case of providers. Such pressure could be imposed in several ways, including reducing Medicare’s payment updates automatically to take into account expected productivity gains; reducing Medicare payments in areas of the country with higher spending; giving an official in the executive branch broad discretion to change Medicare to produce savings (especially if there was also an across-the-board reduction in payments to providers if savings are not achieved in other ways); and limiting the growth of Medicare’s implicit subsidy of premiums. (CBO discussed a number of such approaches in a June 16 letter to Senators Conrad and Gregg.) This letter focuses on proposals to give the President broad authority to make changes in the Medicare program, subject to Congressional disapproval. Such proposals could enhance the prospects for additional long-term cost control, but they would also entail shifting some power from the Congress to the executive branch. In particular, CBO reviewed draft legislation transmitted to the Congress by the Administration on July 17, 2009, titled the Independent Medicare Advisory Council Act of 2009. CBO estimates that enacting the proposal, as drafted, would yield savings of $2 billion over the 2010–2019 period (with all of the savings realized in fiscal years 2016 through 2019) if the proposal was added to H.R. 3200, the America’s Affordable Health Choices Act of 2009, as introduced in the House of Representatives. This estimate represents the expected value of the 10-year savings from the proposal: In CBO’s judgment, the probability is high that no savings would be realized, for reasons discussed below, but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis. This letter describes the considerations that underlie CBO’s estimate and identifies ways in which such proposals could be structured to garner significantly more savings—especially in the years beyond 2019. In particular, if legislation were to provide an independent advisory council with broad authority, establish ambitious but feasible savings targets, and create a clear fall-back mechanism for instituting across-the-board reductions in net Medicare outlays, CBO believes such a council would identify steps that could eventually achieve annual savings equivalent to several percent of total spending on Medicare. Achieving such savings, in addition to those estimated to result from the provisions in H.R. 3200 that govern Medicare’s payment rates, would probably require significant changes in the program’s coverage, benefit design, and payment and delivery systems— and a council with the clear mandate, independence, and resources to propose such changes.
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