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Congressional Budget Office July 13, 2012 Assessing Effects on the Federal Budget ofPolicies to Promote Health and Prevent Disease Presentation to the Alliance for Health Reform Linda Bilheimer Assistant Director for Health, Retirement, and Long-Term Analysis

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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

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Considerations in Estimating the Budgetary Impact of aProposed 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

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Types of Health Promotion and Disease PreventionInterventions ■ 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

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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

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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

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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

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Average Changes in Health Care Spending and Earnings forAdults 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

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Effects on Outlays of Increased Longevity and Lower perCapita 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

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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

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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

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Health-Related Effects on Revenues, Outlays, and theDeficit 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

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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

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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 YearsFor 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