Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment

January 18th, 2012 by Douglas Elmendorf

In the past two decades, Medicare’s administrators have conducted demonstrations to test two broad approaches to enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program. Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly. Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations—6 in the first category and 4 in the second—that have been evaluated by independent researchers. CBO finds that most programs tested in those demonstrations have not reduced federal spending on Medicare.

Most Disease Management and Care Coordination Programs Have Not Reduced Medicare Spending

The disease management and care coordination demonstrations comprised 34 programs that used nurses as care managers to educate Medicare beneficiaries about their chronic illnesses, encourage them to follow self-care regimens, monitor their health, and track whether they received recommended tests and treatments. Programs could earn fees to cover the costs of the interventions. All of the programs sought to reduce hospital admissions by maintaining or improving beneficiaries’ health, and because hospitalizations are expensive, that reduction was expected to be the key mechanism for reducing Medicare spending. CBO finds that:

  • On average, the 34 programs had little or no effect on hospital admissions. There was considerable variation in the estimated effects among programs, however (see figure below).
  • In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered.
  • Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs. But, on average, even those programs did not achieve enough savings to offset their fees.

Effects of 34 Disease Management and Care Coordination Programs on Hospital Admissions

(Percentage Change in Hospital Admissions)

Note: Bars with lighter shading represent programs with fewer than 400 enrollees. The estimates for those programs are less precise than the estimates for the other programs.

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Raising the Ages of Eligibility for Medicare and Social Security

January 10th, 2012 by Douglas Elmendorf

Raising the ages at which people can begin to collect Medicare and Social Security benefits would be one way to lower federal outlays, raise revenues, and reduce long-term fiscal imbalances. A CBO issue brief released today reviews how ages of eligibility affect beneficiaries under current law and how delaying eligibility would affect beneficiaries, the federal budget, and the economy. (CBO has explored this issue in other publications, most recently in March 2011 in Reducing the Deficit: Spending and Revenue Options.)

CBO’s Key Findings

Policy Option

Long-Term Budget Impact

Implications for Beneficiaries

Raise the Medicare eligibility age from 65 to 67

Medicare spending declines by about 5 percent

Access to Medicare would be delayed for most people; many of the affected people would pay more for health care

Raise the full retirement age for Social Security from 67 to 70

Social Security spending declines by about 13 percent

People would face reduced benefits over a lifetime

Raise the early eligibility age for Social Security from 62 to 64

Social Security spending changes little

Access to Social Security benefits would be delayed for many people, but their monthly benefit amounts would increase

Raising any of the ages of eligibility would cause some people to work longer, thereby increasing the size of the workforce and the economy. Although the magnitude of those effects is difficult to predict, CBO estimates that:

  • Raising Social Security’s early eligibility age to 64 or the full retirement age to 70 would, in the long term, boost the size of the workforce and the economy by slightly more than 1 percent.
  • Raising Medicare’s eligibility age to 67 would also boost the size of the workforce and the economy, but by a much smaller amount.

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Do Public-Private Partnerships Build Roads More Quickly Or At A Lower Cost?

January 9th, 2012 by Douglas Elmendorf

Currently, the federal government and state and local governments face calls for more and better highways but confront budgetary constraints in providing them. Some analysts have suggested that public-private partnerships might supply at least a portion of that capacity by providing additional financing for road projects and improving the efficiency of a highway’s construction and operation over the life of the road.

A CBO study, which was prepared at the request of the Chairman of the Senate Budget Committee, focuses on the following questions:

  • What are public-private partnerships and how often are they used?
  • Does private financing increase the resources available to build, operate, and maintain roads?
  • Do public-private partnerships build roads more quickly or at a lower cost?

What are public-private partnerships and how often are they used?

The term “public-private partnership” refers to a variety of arrangements for highway projects that transfer some of the risk associated with a project and some of the control of a project to a private partner. That transfer is achieved in part by bundling some of the elements of providing a highway. Among the most extensive public-private partnerships are those in which a private firm provides financing for a highway project, designs and builds it, and then, in exchange for the right to charge tolls, operates and maintains it over its useful life.

The most common type of public-private partnership, however, is a more limited agreement in which one contractor agrees to both design and build a highway rather than having a government agency manage each of those steps separately. Under such a partnership, the contractor assumes greater risks than it would under the traditional approach (in which a state or local government assumes most of the responsibility for carrying out a project and bears most of its risks) because the terms of the partnership’s contract generally limit the private firm’s ability to renegotiate the contract.

The use of such partnerships for providing highway infrastructure is limited in the United States. Between 1989 and 2011, the value of highway projects financed through such partnerships represents a little more than 1 percent of the approximately $3 trillion (in 2010 dollars) that was spent on highways during that period by all levels of government. The use of public-private partnerships is increasing, however especially for limited-access highways in urban areas.

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Federal Budget Deficit for the First Quarter of 2012: $320 Billion

January 9th, 2012 by Douglas Elmendorf

The federal budget deficit was $320 billion for the first quarter of fiscal year 2012, CBO estimates in its latest Monthly Budget Review, $49 billion less than the deficit recorded in the same period in fiscal year 2011. But $26 billion of that difference resulted from shifts in the timing of certain payments because the regular payment dates fell on weekends or holidays; otherwise, the deficit would have declined by only $23 billion. Later this month, CBO will issue new budget projections—spanning the period from 2012 through 2022—in its annual Budget and Economic Outlook.

Receipts Were Up By 4 Percent

Receipts in the first quarter of fiscal year 2012 totaled $554 billion, an increase of $23 billion. Most of the gains stemmed from higher corporate income taxes, which rose by $18 billion, or 51 percent.

That increase occurred because tax payments rose by $6 billion and refunds fell by $13 billion. Corporate refunds were unusually high in the first quarter of fiscal year 2011 in the aftermath of the recession; this year the amount is more comparable with those of the years before the recession.

Altogether, individual income and payroll tax receipts rose by $4 billion, or about 1 percent. Several factors contributed to that increase: Refunds of individual income taxes declined by $5 billion; nonwithheld receipts of individual income and payroll taxes rose by $3 billion; and receipts from unemployment taxes increased by $2 billion, as states replenished trust funds that had been depleted during the recession. Much of the gain was offset by a $6 billion (or 1 percent) drop in withholding of individual income and payroll taxes, primarily because the payroll tax rate in effect during the first quarter of fiscal year 2012 was lower than that in the same period a year earlier.  

Receipts from estate and gift taxes rose by $2 billion, and collections from excise taxes increased by $1 billion, but receipts from the Federal Reserve declined by $3 billion, as its portfolio has shifted to lower-yielding, less-risky assets.

Adjusted for Timing Shifts, Outlays Were Essentially Unchanged

Spending for some programs and activities was lower in the first quarter of this fiscal year than in the same period last year. Outlays for Medicaid fell by $15 billion, or 20 percent, because, by law, the federal government’s share of the program’s costs dropped in July 2011. Adjusted for the shift in the timing of military paychecks, defense spending was $10 billion, or 5 percent, lower than in the same period a year before. In addition, spending for unemployment benefits fell by $9 billion or 26 percent because fewer claims were filed.

Those decreases were partially offset by increases in other programs. Net payments to the government-sponsored enterprises Fannie Mae and Freddie Mac increased by $11 billion. Spending for net interest on the public debt increased by $4 billion, or 6 percent, in the first quarter of fiscal year 2012. Adjusted for timing shifts, outlays for Social Security benefits and Medicare also were higher than in the first quarter of 2011, by $6 billion and $1 billion, respectively.

Expenditures for “Other Activities,” adjusted for timing shifts, were $12 billion, or 5 percent, higher than in the first quarter of fiscal year 2011. Net outlays for stabilizing corporate credit unions rose by $12 billion, mostly because outlays in fiscal year 2011 were reduced by loan repayments from credit unions. In contrast, education spending dropped by $6 billion (or 26 percent) as spending from the 2009 economic stimulus act waned.

The Monthly Budget Review was prepared by Elizabeth Cove Delisle, Barbara Edwards, Daniel Hoople, David Rafferty, and Joshua Shakin.
 

Deforestation and Greenhouse Gases

January 6th, 2012 by Douglas Elmendorf

The destruction and degradation of forestland, caused mainly by expanded agricultural activity in tropical developing countries, currently accounts for roughly 12 percent of global greenhouse gas (GHG) emissions. Slowing or halting deforestation in developing countries is a potentially low-cost way to help reduce global GHG emissions.

For that potential to be realized, however, substantial challenges would need to be addressed. A CBO study, prepared at the request of the Chairman of the Senate Committee on Foreign Relations, examines those challenges and assesses policy approaches for reducing forest-based emissions.

To provide a handy summary of the most pertinent points of today’s study, CBO published an infographic on deforestation and greenhouse gases—the fourth in CBO’s ongoing series of infographics.

Key Points

Challenges in Reducing Forest-Based GHG Emissions. If actions to support forest preservation are to play a cost-effective role in a significant international effort to reduce global GHG emissions, three broad challenges would have to be met:

  • Obtaining useful measurements of changes in the amount of carbon stored in forests,
  • Structuring incentives to reduce total forest-based emissions, and
  • Improving governance in developing countries.

Improving governance may be the most intractable of the three challenges.

Policy Approaches for Reducing Forest-Based Emissions. Approaches the United States and other developed countries could take to encourage forest preservation in developing countries fall into two broad categories:

  • Providing financial and technical assistance to governments interested in preserving forests, and
  • Creating demand in private markets for reductions in forest-based GHG emissions.

The two types of policies might work best together. The viability of markets, for example, may depend on having in place a reliable program for achieving measurable reductions in forest-based emissions—the type of program that financial and technical assistance can help establish.

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Actual ARRA Spending Over the 2009-2011 Period Quite Close to CBO’s Original Estimate

January 5th, 2012 by Douglas Elmendorf

Almost three years have passed since the enactment of the American Recovery and Reinvestment Act of 2009 (ARRA). Back in November 2009, we reported in a blog post that actual spending in fiscal year 2009 of funds provided by ARRA was about 1 percent higher than CBO’s estimate for that year. How did ARRA spending turn out over the 2009–2011 period (that is, from February 2009 through September 2011), and how do those results compare with CBO's original estimates?

Key Points

  • Total ARRA spending through fiscal year 2011 totaled about $494 billion—$20 billion (4 percent) higher than CBO’s original estimate.
  • Our projections were very close in many cases—particularly those for outlays of the Departments of the Treasury, Transportation, and Energy.
  • The higher-than-anticipated spending resulted primarily from the costs of two programs that were noticeably affected by economic developments that differed from projections: unemployment-related benefits administered by the Department of Labor, and nutrition assistance administered by the Department of Agriculture. 
  • More than two-thirds of total anticipated ARRA spending has been recorded, with expenditures peaking in 2010.

Comparison of CBO’s Original Estimates of ARRA Spending With Actual Spending
February 2009 through September 2011
(In Billions)

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CBO’s Estimate of the Cost of the TARP: $34 Billion

December 16th, 2011 by Douglas Elmendorf

Today CBO released the latest in a series of statutory reports on transactions undertaken as part of the Troubled Asset Relief Program (TARP)—the program established in October 2008, during the financial crisis, to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of “troubled assets.”

To further our effort to demystify certain aspects of the federal budget, CBO also prepared an infographic on the TARP. Its aim is to summarize the most pertinent details about the TARP since its inception: the types of assistance, cash disbursements, and net budgetary costs or gains.

What is CBO’s current estimate?

CBO estimates that the net cost to the federal government of the TARP’s transactions, including the cost of grants for mortgage programs that have not been made yet, will amount to $34 billion. CBO’s analysis reflects transactions completed, outstanding, and anticipated as of November 15, 2011.

That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding home foreclosures: CBO estimates a cost of $59 billion for providing those three types of assistance.

But not all of the TARP’s transactions will end up costing the government money. The program’s other transactions with financial institutions will, taken together, yield a net gain to the federal government of about $25 billion, in CBO’s estimation.

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CBO’s Budget Infographic

December 12th, 2011 by Douglas Elmendorf

The federal government's finances are pretty complicated and not always easy to understand, and most of CBO's reports about the budget outlook are fairly lengthy and detailed. In fact, one of the questions we're most frequently asked is how much the government spends and takes in each year. For those who are not very familiar with the budget, finding the answer is sometimes harder than it should be.

CBO's newest infographic—that is, information presented in a graphic form—describes some key elements of the federal budget, including a breakdown of its major components and a visual history of the budget and federal debt over the past 40 years. This graphical budget primer is more accessible than some of our longer reports, and we're hopeful that it will make the federal budget easier to understand.

CBO's Budget Infographic

Today's infographic is the latest installment in our ongoing effort to present more budgetary information in a graphic form. This past summer we provided a set of easy-to-view slides on the outlook for the budget and economy. In addition, we published an infographic on Social Security, which provides historical statistics and projections of the program's financial status, the number of workers per beneficiary, the distribution of recipients, and the program's share of federal spending.

Jonathan Schwabish of CBO's Health and Human Resources Division and Courtney Griffith of CBO's communications team prepared today's infographic.

Federal Budget Deficit Close to $240 Billion for the First Two Months of 2012

December 7th, 2011 by Douglas Elmendorf

The federal budget deficit was close to $240 billion for the first two months of fiscal year 2012, more than $50 billion below the deficit recorded through November of last year, CBO estimates in its latest Monthly Budget Review. Much of that difference occurred because roughly $30 billion in payments that ordinarily would have been made on October 1, 2011 (that is, in fiscal year 2012), were made instead in September (that is, in fiscal year 2011) because October 1 fell on a weekend. Without those shifts in the timing of payments, the decline in the deficit for the two-month period would have been about $20 billion.

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Spending Patterns for Prescription Drugs Under Medicare Part D

December 1st, 2011 by Douglas Elmendorf

The centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act) was the creation of Medicare Part D, a subsidized pharmaceutical benefit that went into effect in 2006. That additional coverage constituted the most substantial expansion of the Medicare program since its inception in 1965. In 2010, the federal government spent $62 billion on Part D, representing 12 percent of total federal spending for Medicare that year.

Under Medicare Part D, all enrollees receive a subsidy for prescription drug insurance. For enrollees with sufficiently low income and assets, an additional low-income subsidy (LIS) is available (enrollees who receive the LIS benefit are referred to here as LIS enrollees). Today CBO published an issue brief that reviews patterns of Medicare Part D utilization and spending among LIS and non-LIS enrollees in 2008—the most recent year for which data were available when CBO undertook this analysis.

Average Expenditures Higher for LIS Beneficiaries

  • In 2008, LIS beneficiaries constituted 40 percent of Part D enrollment but accounted for 55 percent of total Part D spending.
  • At $3,600, average per-capita expenditures were twice as high for LIS beneficiaries as for non-LIS beneficiaries ($1,800). (Total spending on Part D drugs equals the sum of spending by all payers combined, including plan sponsors, beneficiaries, the federal government, and third-party payers; in this brief, it is measured on a per-beneficiary basis.)

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