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Congressional Budget Office
                                                              July 13, 2012




  Assessing Effects on the Federal Budget of
Policies to Promote Health and Prevent Disease

       Presentation to the Alliance for Health Reform


                          Linda Bilheimer
 Assistant Director for Health, Retirement, and Long-Term Analysis
Assessing the Cost Impact of Health Interventions:
Key Concepts

 ■ Costs of Health Care
    – Effects on per capita health care spending

 ■ Cost Effectiveness
    – Return on investment

 ■ Budgetary Impact           CBO’s Focus
    – Effects on the federal government’s spending and revenues




                  CONGRESSIONAL BUDGET OFFICE
Considerations in Estimating the Budgetary Impact of a
Proposed Health Policy

 ■ Baselines for Health Care Spending, Health Risks, and
   Health Outcomes

 ■ Behavioral Responses to the Policy

 ■ Effects on Federal Spending
    – Medicare, Medicaid, Social Security (OASI and DI), Supplemental
      Security Income, other federal programs

 ■ Direct and Indirect (Health-related) Revenue Effects

 ■ Strength of the Evidence Base


                  CONGRESSIONAL BUDGET OFFICE
Types of Health Promotion and Disease Prevention
Interventions

 ■ Clinical Preventive Services

 ■ Community-Based Health Promotion

 ■ Regulations to Limit Risky Behavior

 ■ Personal Financial Incentives to Modify Risky Behavior

 ■ Excise Taxes on Products with Health Risks




                 CONGRESSIONAL BUDGET OFFICE
Goal of CBO’s Smoking Project

 ■ Assess the Full Budgetary Consequences of an Increase in the
   Federal Excise Tax on Cigarettes
    – Consider a 50-cent increase (indexed for inflation and growth in income)
    – Focus primarily on changes in outlays and revenues resulting from changes
      in health because of the policy
    – Estimate effects for the 10-year “budget window” and the longer term

 ■ Caveats
    – Policymakers’ decisions depend on other considerations besides the
      budget
    – Other policies to improve health would probably have different budgetary
      effects
    – Strength of evidence was a factor in selecting this case study of a
      prevention policy




                  CONGRESSIONAL BUDGET OFFICE
CBO’s General Analytic Approach




                                             Health Care
                                                           Federal Health Care
                                            Spending per
                                                               Programs
                                               Capita

    Policy       Reduction   Improvements
                                             Mortality
 Intervention   in Smoking     in Health
                                                           Retirement Programs
                                            Labor Market
                                                            Disability Insurance
                                               Effects
                                                                 Revenues




                   CONGRESSIONAL BUDGET OFFICE
Increase in the Population Because of the Policy

   Number of Additional People
   70,000



   60,000
                                                                All Adults

   50,000



   40,000
                                                                65 or Older

   30,000



   20,000

                                                             18 to 64 Years Old
   10,000



       -0
            2013    2016         2019   2022   2025   2028        2031            2034



                           CONGRESSIONAL BUDGET OFFICE
Average Changes in Health Care Spending and Earnings for
Adults Affected by the Policy
   Percentage Change in Health Care Spending per Capita
     2013        2016         2019            2022        2025   2028   2031   2034
    0
    -2
    -4
    -6
    -8
   -10
   -12

   Percentage Change in Earnings per Capita
   4

   3

   2

   1

   -
   0
       2013      2016         2019            2022        2025   2028   2031   2034




                         CONGRESSIONAL BUDGET OFFICE
Effects on Outlays of Increased Longevity and Lower per
Capita Health Care Spending
   Percentage of GDP
   0.025%


   0.020%


   0.015%
                                     Effects of Greater Longevity
   0.010%

                                                                                    Total Effects on Outlays
   0.005%


   0.000%


  -0.005%

                          Effects of Lower per Capita Health Care Spending
  -0.010%


  -0.015%
         2013   2018   2023   2028   2033   2038    2043    2048    2053     2058     2063    2068    2073     2078   2083




                              CONGRESSIONAL BUDGET OFFICE
Effects on Outlays, by Program

 Percentage of GDP
 0.0025%


 0.0020%
                                                                                      Total
 0.0015%


 0.0010%
                                                                                  Medicare
                                             Social Security
 0.0005%
                                                                                              Other

 0.0000%


 -0.0005%
                                                                      Medicaid and Exchange Subsidies
 -0.0010%


 -0.0015%
         2013        2016      2019   2022             2025    2028            2031              2034




                            CONGRESSIONAL BUDGET OFFICE
Health-Related Effects on Revenues

 Percentage of GDP
   0.012%



   0.010%                             Total Effects on Revenues from
                                         Improvements in Health


   0.008%


                                                   Effects of Changes in Labor Earnings per Capita
   0.006%


                                                                           Effects of Greater Longevity
   0.004%



   0.002%
                                                      Effects of Lower Health Insurance Premiums and
                                                                       Related Factors
   0.000%



  -0.002%
         2013   2018   2023   2028   2033   2038    2043    2048    2053    2058    2063    2068     2073   2078   2083



                              CONGRESSIONAL BUDGET OFFICE
Health-Related Effects on Revenues, Outlays, and the
Deficit

  Percentage of GDP
  0.014%
                                                                                Total Effects on Outlays
  0.012%

  0.010%                  Total Effects on Revenues from
                             Improvements in Health
  0.008%

  0.006%

  0.004%                                                                        Net Effects on the Deficit from
                                                                                  Improvements in Health
  0.002%

  0.000%

  -0.002%

  -0.004%

  -0.006%

  -0.008%
         2013   2018   2023   2028   2033   2038   2043    2048   2053   2058   2063    2068   2073    2078       2083



                              CONGRESSIONAL BUDGET OFFICE
Overall Budgetary Effects of the Policy

  Percentage of GDP
  0.04%


  0.03%
                Total Effects on Revenues

  0.02%


  0.01%
                              Total Effects on Outlays

  0.00%


  -0.01%

                                                         Net Effects on the Deficit
  -0.02%


  -0.03%


  -0.04%
        2013   2018   2023   2028    2033    2038    2043      2048    2053     2058   2063   2068   2073   2078   2083




                             CONGRESSIONAL BUDGET OFFICE
Main Conclusions

   ■ Changes in Federal Spending from Improved Health Would Be
     Relatively Small
   ■ Federal Spending Would Be Lower in the First Decade but
     Would Begin Rising in the Second or Third Decade
   ■ Better Health Would Raise Revenues on an Ongoing Basis
   ■ Combined, Those Health Effects Would Produce Very Small
     Declines in the Deficit for About Five Decades
   ■ The Largest Budgetary Effects Would Come from Excise Tax
     Receipts, Dominating Health Effects for at Least 75 Years

For further information, see Congressional Budget Office, Raising the Excise Tax on Cigarettes:
Effects on Health and the Federal Budget (June 2012), www.cbo.gov/publication/43319
                         CONGRESSIONAL BUDGET OFFICE

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Assessing Effects on the Federal Budget of Policies to Promote Health and Prevent Disease

  • 1. Congressional Budget Office July 13, 2012 Assessing Effects on the Federal Budget of Policies to Promote Health and Prevent Disease Presentation to the Alliance for Health Reform Linda Bilheimer Assistant Director for Health, Retirement, and Long-Term Analysis
  • 2. Assessing the Cost Impact of Health Interventions: Key Concepts ■ Costs of Health Care – Effects on per capita health care spending ■ Cost Effectiveness – Return on investment ■ Budgetary Impact CBO’s Focus – Effects on the federal government’s spending and revenues CONGRESSIONAL BUDGET OFFICE
  • 3. Considerations in Estimating the Budgetary Impact of a Proposed Health Policy ■ Baselines for Health Care Spending, Health Risks, and Health Outcomes ■ Behavioral Responses to the Policy ■ Effects on Federal Spending – Medicare, Medicaid, Social Security (OASI and DI), Supplemental Security Income, other federal programs ■ Direct and Indirect (Health-related) Revenue Effects ■ Strength of the Evidence Base CONGRESSIONAL BUDGET OFFICE
  • 4. Types of Health Promotion and Disease Prevention Interventions ■ Clinical Preventive Services ■ Community-Based Health Promotion ■ Regulations to Limit Risky Behavior ■ Personal Financial Incentives to Modify Risky Behavior ■ Excise Taxes on Products with Health Risks CONGRESSIONAL BUDGET OFFICE
  • 5. Goal of CBO’s Smoking Project ■ Assess the Full Budgetary Consequences of an Increase in the Federal Excise Tax on Cigarettes – Consider a 50-cent increase (indexed for inflation and growth in income) – Focus primarily on changes in outlays and revenues resulting from changes in health because of the policy – Estimate effects for the 10-year “budget window” and the longer term ■ Caveats – Policymakers’ decisions depend on other considerations besides the budget – Other policies to improve health would probably have different budgetary effects – Strength of evidence was a factor in selecting this case study of a prevention policy CONGRESSIONAL BUDGET OFFICE
  • 6. CBO’s General Analytic Approach Health Care Federal Health Care Spending per Programs Capita Policy Reduction Improvements Mortality Intervention in Smoking in Health Retirement Programs Labor Market Disability Insurance Effects Revenues CONGRESSIONAL BUDGET OFFICE
  • 7. Increase in the Population Because of the Policy Number of Additional People 70,000 60,000 All Adults 50,000 40,000 65 or Older 30,000 20,000 18 to 64 Years Old 10,000 -0 2013 2016 2019 2022 2025 2028 2031 2034 CONGRESSIONAL BUDGET OFFICE
  • 8. Average Changes in Health Care Spending and Earnings for Adults Affected by the Policy Percentage Change in Health Care Spending per Capita 2013 2016 2019 2022 2025 2028 2031 2034 0 -2 -4 -6 -8 -10 -12 Percentage Change in Earnings per Capita 4 3 2 1 - 0 2013 2016 2019 2022 2025 2028 2031 2034 CONGRESSIONAL BUDGET OFFICE
  • 9. Effects on Outlays of Increased Longevity and Lower per Capita Health Care Spending Percentage of GDP 0.025% 0.020% 0.015% Effects of Greater Longevity 0.010% Total Effects on Outlays 0.005% 0.000% -0.005% Effects of Lower per Capita Health Care Spending -0.010% -0.015% 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068 2073 2078 2083 CONGRESSIONAL BUDGET OFFICE
  • 10. Effects on Outlays, by Program Percentage of GDP 0.0025% 0.0020% Total 0.0015% 0.0010% Medicare Social Security 0.0005% Other 0.0000% -0.0005% Medicaid and Exchange Subsidies -0.0010% -0.0015% 2013 2016 2019 2022 2025 2028 2031 2034 CONGRESSIONAL BUDGET OFFICE
  • 11. Health-Related Effects on Revenues Percentage of GDP 0.012% 0.010% Total Effects on Revenues from Improvements in Health 0.008% Effects of Changes in Labor Earnings per Capita 0.006% Effects of Greater Longevity 0.004% 0.002% Effects of Lower Health Insurance Premiums and Related Factors 0.000% -0.002% 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068 2073 2078 2083 CONGRESSIONAL BUDGET OFFICE
  • 12. Health-Related Effects on Revenues, Outlays, and the Deficit Percentage of GDP 0.014% Total Effects on Outlays 0.012% 0.010% Total Effects on Revenues from Improvements in Health 0.008% 0.006% 0.004% Net Effects on the Deficit from Improvements in Health 0.002% 0.000% -0.002% -0.004% -0.006% -0.008% 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068 2073 2078 2083 CONGRESSIONAL BUDGET OFFICE
  • 13. Overall Budgetary Effects of the Policy Percentage of GDP 0.04% 0.03% Total Effects on Revenues 0.02% 0.01% Total Effects on Outlays 0.00% -0.01% Net Effects on the Deficit -0.02% -0.03% -0.04% 2013 2018 2023 2028 2033 2038 2043 2048 2053 2058 2063 2068 2073 2078 2083 CONGRESSIONAL BUDGET OFFICE
  • 14. Main Conclusions ■ Changes in Federal Spending from Improved Health Would Be Relatively Small ■ Federal Spending Would Be Lower in the First Decade but Would Begin Rising in the Second or Third Decade ■ Better Health Would Raise Revenues on an Ongoing Basis ■ Combined, Those Health Effects Would Produce Very Small Declines in the Deficit for About Five Decades ■ The Largest Budgetary Effects Would Come from Excise Tax Receipts, Dominating Health Effects for at Least 75 Years For further information, see Congressional Budget Office, Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget (June 2012), www.cbo.gov/publication/43319 CONGRESSIONAL BUDGET OFFICE