REMARKS BY CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC ADVISERS SUBJECT: HEALTH-CARE REFORM AND BUDGET DEFICIT LOCATION: CENTER FOR AMERICAN PROGRESS, WASHINGTON, D.C. TIME: 12:12 P.M. EDT DATE: MONDAY, OCTOBER 26, 2009
MS. ROMER: Well, thank you very much. It is truly an honor to be here.
You know, in recent months, many have expressed concern about the budget deficit. And this is a concern that President Obama and his entire economic team share. Indeed, it would be hard not to be concerned. Just last week, Treasury and the Office of Management and Budget reported that the final estimate for the fiscal 2009 deficit was $1.4 trillion, or about 10 percent of GDP.
In the Mid-Session Review of the 2010 budget issued last August, the administration estimated that we were on a path that would result in a cumulative deficit over the 10-year budget window of some $9 trillion. This projected 10-year deficit reflects three quite separate developments.
First, a substantial fraction is simply the result of the terrible recession that began 22 months ago. Because tax revenues fall and spending on programs such as unemployment insurance rises when the economy sinks into a recession, the deficit naturally increases in these times and provides automatic countercyclical stimulus.
Unfortunately, even though we appear to have entered the recovery phase, unemployment is forecast to remain elevated for some time. As a result, weak economic conditions are predicted to have a negative impact on the deficit for the next several years.
Second, in response to the recession, the administration and Congress have taken aggressive action.
The $787 billion allocated to the American Recovery and Reinvestment Act and the $700 billion of total resources available to the Troubled Asset Relief Program sound enormous. And they do represent some of the boldest countercyclical and financial-rescue operations in American history. But both of these are one-time actions, and so their impact on the long-run deficit is small. Indeed, using estimates from the Congressional Budget Office of the costs of the recovery act, including the associated interest expense, the recovery act accounts for only about 10 percent of the cumulative projected deficits over the next 10 years. And given that many of the TARP funds invested in banks last winter are now being paid back with interest, its ultimate cost to taxpayers is likely to be a fraction of the initial allocation.
Furthermore, if the recovery actions prevented a calamitous economic collapse, as I firmly believe they have, then they have in fact been causing the deficit to be lower than it otherwise would have been; not higher.
Finally, by far, the lion's share of the projected cumulative deficit is due to policy actions taken in the last administration. Economists Alan Auerbach and William Gale find that the policies from the last eight years that we failed to pay for -- including cutting taxes, introducing a new entitlement program for prescription drugs, and fighting two wars -- are contributing approximately $700 billion per year to the budget deficit. Before those actions were taken, it's hard to remember that we were on track to run large budget surpluses over the coming decade.
As a result, in the absence of those actions, we could have had an economic downturn as severe as the one that we've had, and responded to it as aggressively as we have, all the while keeping the budget roughly balanced over the next 10 years.
Now, as large as the 10-year budget deficit is, it is unfortunately just the tip of the iceberg. According to the OMB, our current path for the budget deficit in -- on our current path, the budget deficit in 2019 is projected to be about 4 percent of GDP. CBO projects that by 2035, it will be between 6 and 15 percent of GDP, depending on what one assumes about the continuation of current policies. By 2050, it's projected between 8 and 22 percent.
Now, Auerbach and Gale calculate that roughly half of this very long-run deficit is due to the policy actions of the past eight years. Just 3 percent of the long-run fiscal problem is due to the recovery act. The rest of this yawning gap is due to projected rises in spending on entitlement programs -- primarily Social Security, Medicare and Medicaid. Some of this is just the result of the aging of our population; but the far greater source is the fact that health- care costs, both public and private, are rising much faster than GDP.
Now, whatever or whoever was responsible for the projected budget deficit, it is clearly the president's and the Congress's responsibility to deal with it. It is simply not a problem that can be kicked down the road indefinitely.
Now, obviously we can't go back eight years and make more responsible choices. And we can't take short-run contractionary actions that could endanger the recovery.
We need to look forward and begin to put the nation on a more sustainable long-run fiscal path. Given the central role of rising health care expenditures, any solution to our long-run budget problem will simply have to include slowing the growth rate of health care costs, which brings me to health care reform.
You know, some have argued that it is irresponsible to reform our health care system at a time when the budget deficit is so large and our long-run fiscal problems are so severe. I firmly believe the opposite: It is fiscally irresponsible not to do health-care reform. To bury our head in the sand for even one more year and pretend that the problem of rising government health care expenditures will go away is just simply untenable. We are on a collision course with reality. And for the first time in decades, we have a chance to genuinely reform health care and expand health insurance coverage in this country, and we must see reform through to its completion.
But we must do reform well. We have a responsibility to make the health-care system work better for all Americans and to expand coverage. However, any expansion or improvements in coverage must be completely paid for in the short run. More fundamentally, we have to put in place reforms that will genuinely and significantly slow the growth rate of costs. That is, reform must be at least budget-neutral over the next decade, and significantly budget-improving over the longer run.
Well, so far, I think health-care reform is on track to accomplish all three of these objectives. And it's essential that the final legislation stay true to these fundamental goals.
Now, there is substantial agreement about how to expand coverage and how to improve the current system for those who already have insurance.
The existing versions of reform legislation call for an expansion of Medicaid coverage. The legislation also involves the creation of a health-insurance exchange to sell quality, affordable coverage to small businesses and to individuals who don't currently have access to affordable coverage.
This coverage will be subsidized for low-and-middle-income families and individuals. It'll be cheaper than the existing system, because of substantially lower administrative costs and greater group- purchasing power, from the 20 to 30 million Americans who are expected to obtain coverage through the exchange.
Versions of the legislation also include tax credits for small firms and shared responsibility requirements for large firms, to encourage increases in employer-provided insurance.
Likewise, the reform proposals emerging in Congress require individuals who can afford it to purchase health care -- health insurance coverage, just as we require everyone who drives to carry automobile insurance. The legislation puts in place sensible limitations on premium discrepancies by age; it prohibits exclusions based on preexisting conditions, caps annual out-of-payment (sic) costs, and eliminates lifetime limits on benefits.
Well, these features of the legislation will expand access to coverage to the vast majority of Americans who do not currently have insurance. It will provide lower premiums for the thousands of small businesses struggling to provide coverage for their employees, and hence improve their ability to compete with larger firms and to attract the best workers.
This impact -- one that the Council of Economic Advisers discussed in its July 25th report on "The Economic Effects of Health Care Reform on Small Businesses and Their Employees" -- was only made more pressing by published reports yesterday that the status quo is leading to 15-percent premium increases for small businesses, meaning that even more of these businesses will be forced to choose between health coverage and higher wages for their workers. And reform legislation will give all Americans the security of knowing that there'll always be a place where they can get the coverage they need at a reasonable price.
Now, though there are some variations across the different versions of the bill, we also are on track to meet the president's promise that health-care reform will not add one dime to the deficit. The five congressional committees have identified hundreds of billions of dollars of savings in Medicare and Medicaid. These are not savings that reduce the quality of care; they're savings that come from reducing wasteful spending, improving incentives for coordinated care and eliminating unwarranted taxpayer subsidies to private insurance companies. The committees have also identified reasonable revenue sources, many of them from within the health-care system, to help pay for reform.
Now, one of the most significant savings that's being discussed is a reduction in payments to private insurers for Medicare Advantage, a program through which seniors eligible for Medicare enroll in -- private insurance plan paid for by the government. Because of a lack of competitive bidding and artificially inflated rates, Medicare currently spends on average about 14 percent more per beneficiary in a Medicare Advantage plan than it does for Medicare beneficiaries in the traditional fee-for-service program.
Even this may understate the degree of overpayment. Ongoing research by economists at the Council of Economic Advisers and the Treasury suggests that Medicare beneficiaries who enroll in Medicare Advantage plans tend to be healthier prior to enrolling than their counterparts who remain in traditional Medicare, to a degree that's not reflected in the CMS risk adjustment.
As a result, one might expect the government to spend less on their health care, not 14 percent more. By reducing overpayments for Medicare Advantage, we can (say ?) -- save tens of billions of dollars over the next decade, while at the same time reducing Medicare Part B premiums and maintaining the quality coverage provided to all Medicare beneficiaries.
Now, just a few weeks ago, CBO reported that the Senate Finance Committee's version of reform legislation would reduce the budget deficit by $81 billion over the 10-year budget window. More importantly, CBO found that the proposal had a surplus in the tenth year, which led them to conclude that the legislation would generate substantially larger savings in the second decade.
Now, while the final legislation will, of course, be somewhat different from that passed by the Finance Committee, the fact that one version is even better than budget-neutral shows that fiscally prudent health-care reform that expands coverage to tens of millions of Americans and transforms our health-care system to one that's higher quality and lower cost is possible.
Now, even more important than short-run fiscal prudence are the changes under consideration in reform legislation to slow the growth rate of health-care costs over time. We must use this reform effort to put in place changes that will improve efficiency and lower cost growth over the long term. Only by doing so will we prevent the budgetary catastrophe currently looming for our children and grandchildren.
Now, the current proposals contain many of the measures that health economists and medical experts think are likely to genuinely reduce the growth rate of health-care costs. Perhaps most fundamentally, the legislation plots a course toward providing access to health-insurance coverage for all Americans. This, together with new incentives for preventive care, makes it likely that we'll reap the efficiency gains that are possible from replacing high-cost emergency-room care with a sensible promotion of healthier lifestyles and timely routine care.
Now, the Senate Finance Committee bill includes a tax on high- priced insurance plans, suggested by Senator Kerry. A policy along these lines, designed carefully, will encourage both employers and employees to be more watchful health-care consumers. It will discourage insurance companies from offering higher-priced plans that would otherwise eat up larger and larger shares of workers' wages. A policy such as this is probably the number one item that health economists across the ideological spectrum believe is likely to stem the explosion of health-care costs.
Now, several of the current versions of health-insurance reform include sensible payment reforms for doctors, hospitals, and other providers participating in Medicare. For example, bundling payments for an episode of care associated with an acute event, such as a heart attack or a hip fracture, is a common-sense change. It gives doctors and hospitals the right incentives to provide patients with efficient high-quality care and the information they need to make the transition back home successfully. These incentives improve patient care and outcomes, while lowering costs in the long run.
Precisely because such reforms are so important for cost containment and patient health, it's crucial to create an institutional structure that encourages and routinizes such innovations.
That's why the president has endorsed the establishment of an Independent Medicare Advisory Council, or IMAC. The IMAC would provide Congress each year with cost-saving recommendations that improve care and maintain benefits. By removing some of the political pressure around such reforms, the IMAC would make it easier for improvements to be made year after year. Like the Kerry policy, this is another key innovation that could genuinely slow the growth rate of costs.
Now, another institutional structure that the president has emphasized as potentially important -- as a potentially important source of cost containment is the inclusion of a public health insurance option in the exchange. Such an option would give individuals and small businesses the choice of a publicly managed health insurance plan that competes on a level playing field with private insurers.
Reports from the U.S. Government Accountability Office show that markets for health insurance are often highly concentrated, especially in rural states, giving insurers a high degree of market power and the ability to raise premiums. A public health insurance option would be a credible entrant in concentrated markets and would serve as a competitive alternative choice, constraining the abilities of insurers to raise premiums and thus containing the growth rate of costs.
Well, the measures that I've described, along with the other actions under consideration, would slow the growth rate of health-care costs substantially. Let me emphasize again, though, that the slowing of cost growth is not coming from a reduction in the quality of care. We are talking about cutting the fat out of our health-care system, not the meat. The evidence that our current system has large inefficiencies, and that there are large potential savings, is extremely strong. Research suggests that up to nearly 30 percent of health-care costs could be saved without adverse health consequences. Thus, it should be possible to slow the growth rate of total health expenditures substantially while improving patient outcomes.
All right. Well, in a report issued last June, the Council of Economic Advisers examined the economic benefits of a genuine sustained slowing of the growth rate of health-care costs through improved efficiency. The most fundamental and profound benefit was that slowing the growth rate of health-care costs would free up resources that could be used to produce the other thing that societies value -- everything from education to infrastructure to ordinary goods and services that bring us pleasure. As a result, it would lead to sustained increases in standards of living over time.
Now, to put these benefits in concrete terms, we calculated the effect of lower health-care cost growth on family incomes. We found that even before considering any impact on the deficit or capital formation, these effects were very large. We estimated that slowing the growth rate of health-care costs through improved efficiency by 1- 1/2 percentage points per year would result in median family income as of 2020 that was nearly $2,300 higher than it otherwise would have been; and median family income as of 2030 would be nearly $8,000 higher than it otherwise would have been.
Now, for a typical family, many of these gains would show up in slower growth of their health insurance premium. You know, over the past decade, take-home wages have been stagnating, despite increasing worker productivity, in part because a larger and larger fraction of compensation is taking the form of health benefits.
Without health-care reform, take-home wages are predicted to eventually fall, as skyrocketing health-care costs magnify this effect. Slowing the growth rate of health-care costs will enable firms to once again give raises in the form of take-home pay, rather than more expensive health insurance.
We also estimated what the slowing the growth rate of health-care costs would likely mean for the path of the budget deficit. Our calculation showed that slowing the growth rate of health-care costs -- again, by 1-1/2 percentage points -- starting in 2014, would result in a budget deficit in 2020 that was 1 percent of GDP smaller than it otherwise would have been; by 2030, the impact is a reduction in the budget deficit of 3 percent of GDP; by 2040, it's a reduction of 6 percent of GDP. These estimates make vivid the notion that the number-one thing we can do to get the long-run budget deficit under control is to slow the growth rate of health-care costs.
Now, slowing the growth rate of costs will not solve all of our long-run budget problem. Our population is aging, and even lowering the growth rate of health-care costs quite substantially leaves them rising faster than GDP. As a result, other actions will also need to be taken. But while health-care reform may not be the silver bullet, it clearly must be a significant part of the solution to our deficit woes. It's the key step that we can take right now to bring the long- run budget problem down to manageable proportions.
Now, recent CEA research suggests that the total fiscal impact of health-care reform may be even larger than these baseline estimates suggest. You know, as I've described, current draft legislation greatly expands access to health-insurance coverage. This change is crucially important for state and local governments that currently pay for much of the care provided to the uninsured. Using a wide range of sources -- everything from state reports, county records and, I can tell you, quite a few phone calls to local officials -- the CEA has provided some lower-bound estimates of the amount that 16 states currently spend on care for people without insurance.
We find that these 16 states are spending at least $3.6 billion per year on this uncompensated care. And we estimate that they're spending another 600 million (dollars) on higher insurance premiums for state and local government employees, because of the hidden tax that uncompensated care adds to all of our private insurance premiums.
Well, health-care reform that expands insurance coverage will greatly reduce what state and local governments pay for uncompensated care. Indeed, we believe that our measured expenditures are a reasonable estimate of the actual savings; even taking into account that reform will not eliminate all uncompensated care. This is true because we are virtually certain that there is a substantial amount of state and local spending on the uninsured that we have not yet identified.
Now, expanding our projections to all 50 states and the District of Columbia implies savings of roughly $116 billion to state and local governments between 2014 and 2019.
This means that state and local governments could save substantially as a result of health-care reform.
Now, current draft legislation calls for state governments to share some of the cost of expanding coverage. So, for example, CBO estimates that under the Senate Finance Committee proposal, states will spend about $33 billion on increased Medicaid and Children's Health Insurance Program over the same 2014-to-2019 period. Even taking into account this cost, there is therefore a net savings to state and local governments of some $83 billion over six years. When you consider that we're paying for all of the federal expenditures through other savings and revenue increases, this is $83 billion of additional government saving.
Well, some view health care or health insurance reform as something that we should do either before or after tackling the budget deficit. I guess my plea for today is that we view it as the single most significant act we could take to tackle the deficit. Putting in place health-care reform that genuinely slows the growth rate of costs is truly one of the largest and most important fiscal reforms that we can undertake. It's something that has to be done, and the sooner the better.
I think the importance of health-care reform is even greater when seen in the context of the other things going on in our economy. Though we see signs that economic recovery has begun, American workers are still suffering greatly. The unemployment rate reached 9.8 percent in September, and it's widely projected to remain high for a substantial time.
It would be penny-wise but pound-foolish to let concern about the deficit derail efforts to do whatever it takes to re-create the more than 7 million jobs that have been destroyed since this recession began nearly two years ago. Slow recovery and prolonged high unemployment are not only devastating for the individuals and families, they are ultimately bad for the deficit. The longer people are unemployed, the more likely it is that they're going to end up permanently out of the labor force and eventually receiving assistance from other government programs. This is a terrible loss all the way around.
In health-care reform, we have an opportunity to navigate the difficult path between long-run fiscal responsibility and sensible short-run macroeconomic policy. Done correctly, health-care reform can genuinely slow the growth rate of health care costs and thus put us on a path to greatly reduced budget deficits in the long run. Informed observers will recognize that we've made the tough choices and put in place a plan that will help to return us to fiscal prudence.
The credibility that we will gain from such bold action will be far greater than anything that could be achieved through small gestures taken in the midst of the worst recession in postwar history. Indeed, dealing with the looming budget deficits through effective health care reform is not simply the best way to go, it's likely to be the only way.
Thank you. (Applause.)
MS. FEDER: Questions?
MS. ROMER: Of course!
MS. FEDER: Questions?
Q Thank you. Dr. Romer, good afternoon. I'm Ed Chen of Bloomberg News. Could I ask you two quick questions about things you mentioned? One is the uncompensated care, which I think most people believe is a big engine in driving up costs. None of the bills passed by committees on the Hill would do anything for the 10, 12 or more million nonresidents. From a fiscal point of view, how much savings could there be gotten if those folks were covered?
MS. ROMER: Well, certainly, I mean, that -- what we were saying -- and I definitely would love to recommend people go to the CEA website and download our giant 94-page report on uncompensated care and what state and local governments are currently spending, at least in these 16 states -- and, you know, certainly what we have or what we've put together are kind of these lower-bound estimates of what we think they are spending; that includes on everybody, both citizens and undocumented workers.
So what we have certainly said is that we think those numbers are a good estimate of what we could actually save, because we're pretty sure we're missing a lot of what they're actually spending. But it does get to the idea that certainly, you know, the more uncompensated care remains, the more that these state and local governments will be spending on it. But I don't have a particular estimate of the size.
MS. FEDER: Yes. Yes, ma'am.
Q Adele Stan, AlterNet.org. I was very interested, looking at the list of different proposals that you included as means of cost containment, and the fact that the public option -- you kind of hedged a little bit. Your -- the other -- the other things were presented more declaratively, and this was a potentially important source of cost containment. And, of course, in the progressive community, this is a big issue right now. And I'm wondering what you could tell our readers -- I mean, what is your opinion on what would really come of a robust public option in terms of cost containment?
MS. ROMER: So I was certainly planning to present all three of these as important things. I think there is certainly among economists more widespread agreement that something like the Kerry proposal is more certain to slow the growth rate of costs.
I actually personally have been quite persuaded that the public option can be an important source of cost-growth containment. And I'll give you one -- first, I've just got to give a shoutout. I have the world's best senior economist who does health care, who's Mark Duggan, who, for the first year of the Obama administration, is willing to leave his prestigious job at the University of Maryland to be my expert in this area.
But one of the things that I've learned is, if you look at the state of California, for example, where people on Medicaid have -- a lot of the counties, you know, what they do is to contract with HMOs to provide care for Medicaid patients, and there are a lot of what we call two-plan counties, where there's two plans in each county.
And in some counties there are two private plans, and in some counties you have one private plan and one publicly-run plan.
And the really interesting thing is that cost growth in the counties with a public and a private is indeed slower than in counties with two privately-run plans. It's a small sample; whether it would generalize to the whole country -- but that's one of the things that is giving me a sense that it could be something that could genuinely slow the growth rate of costs.
So it is something -- and, you know, of course, the president has said he agrees with this, right; in his September speech to the joint session, said that he did think -- you know, he was concerned about choice and about cost containment, and thought the public option was something that could help to further both of those.
MS. FEDER: Yes, sir?
Q Thank you. I'll use the mike instead. Because it's the heat of the health-care debate and you just addressed public options --
MS. FEDER: You are?
Q Oh, I'm Sam Stein. I'm with the Huffington Post. Thank you.
Wondering if you could talk about what you've studied or looked at when it comes to triggers, and whether they have the same ability to lower costs or contain -- cost containment?
MS. ROMER: I think -- you know, I think we haven't gotten -- I mean, as I said, the evidence even on, you know, public and private is, I think, there still is something where we're collecting the evidence. Knowing what a trigger would do is, I think, beyond, I think, anything that we have a lot of evidence on.
The other thing is, obviously, I don't want to get out ahead of the legislative process. Lots of things are bubbling up these days, so I think I won't -- won't try to comment on any of that; other than saying that this is something obviously that we're working through, that Congress is working through, and we'll see how it comes out.
MS. FEDER: Yes?
Q Jean Minnick (sp). I'm a staffer at the U.S. Senate.
My question goes to the tax on the high-cost insurance; this being one of the expected ways that it will effectively reduce health- care costs. The tax is also one of the biggest pieces to pay for the expansion in coverage. And I'm curious, is there a point where we're not going to get a lot of revenue from that tax, and what the budget impact on expansion of coverage would be.
MS. ROMER: All right, so there are lots of issues here. Again, I think it's useful to think a little bit about what the Kerry proposal does, right? So it is a tax on the high-price brands, on the part that goes above some set level, a level that grows with either the CPI or the CPI plus one, depending on where it comes out, right?
And so that is -- you know, ideally what it's going to do is to encourage consumers and the employers that are buying the plans to be more careful consumers, to put pressure on insurance companies to find ways to lower costs. It's going to put an incentive on insurance companies not to (higher ?) -- to offer those very high-priced plans. So you know, ideally -- right? -- what happens is not many people end up paying the tax -- right? -- precisely because we manage to genuinely slow the growth rate of costs. And of course, that would be -- that would be fantastic.
The other way that that, of course, is good for workers is they'd then have more take-home wages, right? A smaller fraction of your compensation takes the form of health insurance and you actually see it in your pocket in terms of wages. Now, of course, when you get things in your pocket in terms of wages, you pay taxes on them. So you -- you have a revenue effect, even if the excised tax isn't kicking in, precisely because people are earning more, and I think we'd all agree that's a good thing.
MS. FEDER: Yes? Just one second.
Q Lori Montgomery with the Washington Post. Two tax-related questions: Given the -- not only the economic but the deficit- reducing effects of the Kerry proposal, can health-care legislation achieve your deficit goals without it, number one? And number two, there is a lot larger piece of the deficit that has to be dealt with. Lately there's been a flurry of proposals for dealing with it including -- Mr. Podesta just -- was one of several people talking about a VAT tax. What's the administration think about that? Oh boy.
MS. ROMER: (Chuckles.) Let's see. So in terms of, you know, can we -- can we -- you know, I mentioned some things that are in the various bills, the Kerry proposal, the IMAC, preventative care, the public option. Of course, there are tons more things. And if you were to ask me what we really should be doing is not picking and choosing; we should do all of them, right?
So I think I'd pick up that giant CBO volume of the 900 things you could do to slow the growth rate of health-care costs -- and my guess is we need every single one of them -- right? -- so that this is -- you know, we talk about slowing the growth rate of health-care costs by 1-1/2 percentage points. That sounds little. That is unbelievably difficult, right? And so you're -- you're absolutely in a really important place that these things, I think, are all crucially important because it's going to be hard enough to do that, and we can't be giving things away.
So I think that that is certainly important.
Your question then goes to the bigger issue in what I said, which was, you know, this is where we are now, we're dealing with health care; for goodness sakes, if you're worried about the deficit, do this right. And that is where we are now. Very honest; what I very much tried to say is that's not going to be enough. It's a precondition. You've got to do it. There's no way we could get out of this if we don't slow the growth rate of health-care costs. But it is surely going to take more.
And we've heard proposals for VATs, we've heard proposals for commissions, we've heard proposals for dealing with Social Security. Those are all things that I think are going to have to be thought about as we go forward, and certainly we're starting our 2011 budget process and I know Congress is starting to worry about these things, and that is going to be things that we'll be having to think about, about what's the right way.
Again, nobody's talking about anything. We've got to get through this recession. And as I mentioned, a short-run fiscal contraction would be exceedingly foolish even if all you cared about was the budget deficit. But it is something that, when we're recovered, absolutely we have to think about this because it is a really big problem and it's going to take lots of solutions.
MR. FEDER: And speaking of Mr. Podesta.
Q I'm not going to talk about the VAT, but since my name came up, I'll take the opportunity to ask a question.
Dr. Romer, you mentioned the New York Times story yesterday that indicated that small businesses will face on the average of 15 percent hike in health-insurance premiums, which is vastly in excess of what large businesses are facing, and more than overall health inflation looks like.
What's going on there underneath that? Is that a reflection of the noncompetitive market that you talked about? Are insurance companies trying to extract monopoly rents at the end here before health reform takes place? Why -- do you see any underlying causes that would cause such a big bump?
MS. ROMER: You know, I think I don't. I mean, I know mainly what you do, the sense that, you know, there is some attempt to try to jack them up before the legislation is passed.
I think more generally it's just reflective of the incredibly tough time that small businesses have been having with health-care insurance -- with health insurance for a very long time. You know, we did -- as I mentioned, we did a report back in July precisely to point out how the current system is tremendously failing small businesses, right?
So the fact that I think is so telling that a small business on average pays about 18 percent more for the exact same coverage as a big firm. And that's part of why setting up something like the exchange, where they can get the group purchasing power and the risk pooling that you get if you're a big firm is so incredibly important.
The other thing is, you know -- so I think that is -- you know, I think it's -- in general, this is a market that is not working well and especially not working well for small businesses.
And so I think -- you know, I guess, the other point in this -- one of the things I've been impressed by is how carefully the legislation has been developed to help small businesses, right, that it really has been designed to make sure that, you know, they're exempted from any of the employer responsibility provisions.
They get a tax credit to try to make it more affordable, so they can offer coverage for their firms -- for their workers; trying to set up the exchange where at least, you know, the small businesses can get health insurance at a more reasonable price.
We think all of that is just really showing a sensitivity and a real desire to deal with the fact that, you know, small firms -- a much smaller fraction of them offer insurance to their workers.
But you know, I talk to Karen Mills a lot. And she says, when she goes out, what small businesses tell them is, they want to offer insurance. It's just so darned expensive. And so any of these things that we can do to make it easier, we think, is going to be great for the small businesses and obviously for their workers.
MS. FEDER: Okay, we have time for two more questions.
Yes, sir.
Q Teddy Davis from ABC News.
Just wanted to follow up on the earlier question about the Cadillac tax, the tax on high-cost insurance plans. There's such strong opposition to it among House Democrats.
I wanted to find out, if it does come out, I know, your position is we should do everything. But if it were to come out, and instead you -- if in place you had a tax, let's say, on upper-income earners instead, what would be the impact on overall cost control, at that point, if you lost that Cadillac tax?
And you also talked about it being designed correctly. How does it have to be designed, in order to actually achieve the cost savings that you've talked about?
Thanks.
MS. ROMER: All right, lots of -- lots of good questions.
You know, on the, what happens if it -- if it comes out, I mean, obviously there are other ideas for how to pay for health-care reform, you know, in the budget window. You mentioned the tax on high-income earners. We had some other ideas like capping itemized deductions.
You know, I think, those are all surely things we're going to need to do. Getting to Lori's question about, how do you -- how do you deal with the long-run budget deficits?
And so you know, any of the ones that you spend for health car aren't available down the road, for other things that you -- that you might need to do, to get the deficit under control.
The other thing that's so important about the Kerry proposal is, it's one where the revenues tend to grow over time, right, and that's something that then, as the costs grow over time, tends to keep up with them.
In terms of designed correctly, right, we certainly do hear, right, concerns like firefighters. High-risk professionals tend to have higher insurance costs. A part of designing this correctly is to make sure that you take that into account.
Likewise we do know that states have different costs and certainly at least for a period, having something where they -- where you even that out.
We know that older people tend to have a higher cost for their insurance. So those kind of things could be taken into account. And those are all things that we hear Congress talking about, and certainly is something that, you know, makes sense to think about.
We want to put this thing on. We do think it has some very good properties for slowing the growth rate of costs. We want to make sure it's as fair, as, you know, well-designed as possible.
MS. FEDER: Okay. We have time for one last question.
Yes, sir.
Q Thank you. Peter Gluck (sp), Public Research Associates.
Congressman Stupak in the House of Representatives is putting together a coalition of his colleagues to include a provision that would prohibit the use of public subsidies for abortions. Can you tell me what the status of that is; whether you think it will make it into the final bill, which may be more difficult to respond to; and what the president's position on that is? Thank you.
MS. ROMER: I think, again, I'm not going to get ahead of what -- what Congress is going to do. What the president did say in his joint session speech is that the conscience laws that are already on the books would still be there, and so that was how he anticipated that this would -- that this would be dealt with.
MS. FEDER: Thank you enormously for being here. I think if anybody needed a push to move -- move forward, you've given it to us this morning. We're delighted that you did so at the Center for American Progress. And we wish you all the best in the future.
MS. ROMER: Great. Thank you so much.
MS. FEDER: Thank you. Thanks, everybody, for coming. (Applause.)
