through negative economic feedback because of higher rates of government debt? >> those bills were enacted into law and no other changes were made to revenues or spending, then the larger deficits would, over time, crowd out private investment to some extent and would push the level of economic activity down below what it would otherwise be. just like the deficits we project under current law, but a little more so. >> larger spending cuts or tax increases to make up for the revenues? >> yes. for any given target of federal debt you and your colleague was like to reach down the road, the bigger the hole you dig, the farther out you have to climb. >> let me just shift, if i can, in my time to a report just over a month ago that talks about american corporations telling the irs the majority of their offshore profits were in 12 tax havens. it specifically in bermuda,

cayman islands and virgin islands, the amount of profit they attributed to these countries is in some cases 1600% more than the gross domestic product of these countries. this is outright tax avoidance. i'm a small business owner. i know many small business owners pay their taxes legitimately, but some corporations take advantage of these tax havens and tax laws. specific lit one that really has gotten a lot of attention lately is this inversion process. the fact we know already pharmaceutical companies and manufacturing companies have been looking at this, but most recently some retail companies like walgreens is in the process of potentially going down this road, which would be a whole new area we haven't seen taking advantage of this practice walgreens, if i understand it right, there is an estimate over five years we could lose $4 billion worth of tax revenue if they were to do this practice,

which is something that i think the average person would look at as nothing more than -- the's not inversion but subversion. it's a tax avoidance in the worst possible way. do you have any idea what we lose potentially by inversion right now and how much potentially we could be losing depending on how far this goes? >> i'm sorry. i don't have a number for that, congressman. we've done work in this area and happy to point to you a copy of our report on the subject. it's our colleagues and staff in the joint committee and taxation who are more directly involved in helping you and your colleagues think about the effects of changes in law on corporate financial behavior and corporate legal reorganizations and so on. >> i think right now, representative lavin has a bill that shows about $19 billion on the portion he has. there are three different areas how inversions dorn. we are looking at one on the percent of business done somewhere to make it a more rational proposal.

his bill is $19 billion. if we are talking about having walgreens and that is going to cost $4 billion five years from one company like walgreens if we start losing tens, if not hundreds of billions of dollars in revenue because of a practice i think is a subversion of our tax laws, that could have a negative effect on us in the future and down that ten-year revenue you're looking at. >> yes. that is right. it's a very serious issue for you and your colleagues to wrestle. with. >> we might want to follow up with your office and get a copy of that report. i appreciate that. i yield back my type. >> thank you. >> 25 seconds to spare. you'll learn. >> thank you, mr. chairman. follow up on that point, mr. elmendorf, as taxes rise, does tax avoidance activity go up or down? >> as tax rates rise there is more to be gained finding a way around paying the tax rate.

>> reduce that tax avoidance activity one would have to inflict increasingly draconian an enforcement mechanisms or reduce tax rates, is that correct? >> yes. or i think one could change the system in some more fund pavemental way that might reduce the capacity of or reduce the ability of firms to find their what is around through tax avoidance measures. >> for example, threatening the tax rate? >> so lowering the tax rate would reduce incentive for tax avoidance. that's one of the routes you could go. >> four years ago, the house passed a budget produced by this committee. it didn't pass the senate, it didn't become law to govern our spending. if that budget plan had been adopted four years ago and had kept in place, how would that changed your projections for today? where would we be today and where would you be projecting us to be going today? >> i'm sorry, congressman. we don't analyze bunt resolutions as they are occurring.

i don't remember what was in that resolution from a few years ago. i can't speak directly to that. >> what did the cbo estimate? if our spending and the reforms that were enacted, were called for in the budget had actually come to pass, where would we be today? would we have a larger deficit or smaller deficit than we have today? >> again, congressman, i just don't know the details of that resolution. i would presume would you have a smaller deficit, but i don't know we don't look at policy in resolutions carefully and tote them up. >> but you had projections in terms how much revenue would be coming in, how much spending would be done, how much deficit there would be. >> we have projections under current law we never had a projection under the budget resolution. we don't do those directly. committees draw on sets of estimates we've done. we don't tote up the resolution

and say what would happen. we don't have those numbers. >> i wish you would go back in your reports and get us the figures that you were giving to us at the time. i remember them being much smaller deficits in the out years. i remember our health care costs coming back under control. i remember a projection to a balanced budget would be ten years which would be six years from now. >> those projections were the committee's projections. cbo does not do projections of budget resolutions we only do projections of bills that are being considered and we do projections under current law. the committees, i think, draw on estimates we've done sometimes. assembling of them and bottom line for budget resolution doesn't come from us. it comes from the committee itself. >> the only time we had as high a percentage of our gdp as debt was during world war ii. >> that's right. >> now in fiscal year 1945 -- by

the way we grew out of that, did we not? >> yeah. what happened right after world war ii was that the budgets were more or less balanced. not exactly, but more or less for a period of a few decades. the economy grew rapidly and debt came down -- >> fiscal year 1945, harry truman abolished the excess profits tax. in fiscal year 1946 he dramatically reduced the income tax rates. he took in fiscal year '46, he took federal spending from $85 billion down to $30 billion in a single year. he fired 10 million federal employees. it was called war demobilization. they projected 25% unemployment, instead we got the post-war economic boom is that correct? >> yes, that sounds right. >> kennedy slashed rates. reagan and clinton did the same

thing with the same results. why wouldn't we want to do that now? >> congressman, if the congress were to cut tax rates right now, we think that would provide a short-term boost to economic activity, but if there weren't other changes made to offset the budgetary effects, the debt would be much larger and it would be harmful to the economy. >> each of those presidents certainly reagan, certainly clinton, certainly truman cut spending as a percentage of gdp, as well as cutting the tax rates. >> i think one needs to be careful in those comparisons to look at the cyclical state of the economy. part of what's happening now and part of what happened in the early 1980s was the economy recovered from a recession. >> they looked at percentage of gdp, spending relative to gdp growth in the past? >> we draw on that work in what we do. we wrote a set of reports a year or two ago summarizing the evidence on the effects of changes and labor income tax

rates on people's work effort. it's from that review we draw the parameters we use in these estimates and summary literature. >> thank you. >> thank you. i am pleased you are helping my friend from california remember that you don't score resolutions and that was the committee's formulation. i also would think it would be interesting to compare what those rates were when we had that rapid deceleration post world war ii. the tax rates, marginal rate 91%, i think, the top bracket. and there was massive investment in infrastructure. the government under president eisenhower instituted the interstate highway system. i'd like to come back to that in a moment, but one thing that

struck me. this week i think you revised the medicare trust fund life expectancy increase five years from what you had in february? >> this is the part a fund, hospital insurance trust fund. we think will last about five years longer than we said in february. >> i authentic that is perhaps an illustration, you make the point these things ebb and flow. do you the best you can implementing, based on new information. my colleague from maryland pointed out that my republican friends on ways and means are proposing somewhere in the neighborhood of $800 billion of unfunded tax benefits that are going to have the effect of substantially increasing the deficit. you didn't have that information available to you? >> because it's not in law, we wouldn't have put it in this report, congressman. >> i note our friends, and i

appreciate the notion of tax avoidance and compliance. i notice my friends in the republican appropriations committee are proposing to slash further tax an enforcement for the irs. would that, on balance, increase or decrease the deficit over time if we can't enforce our tax laws? >> so congressman, when we looked at proposals like this in the past we concluded reductions in funding for an enforcement would reduce revenues by more than the savings from the cutting the number of irs people. if you did more, devoted more resources to an enforcement, you would reap extra revenues that would probably outweigh the cost of the extra an enforcement. >> slashing your accounts receivable reduces revenue and will increase the deficit? >> again, the proposals we looked at in the past. i don't know the details of this particular proposal you are referring to. >> i think the irony, and some

should say the hypocrisy of professing concern about the long-term deficit while increasing it through tax policies, and making it harder to collect the taxes that are due and owing, and by the way, it's the middle class person with a w-2 that's not going to be able to evade taxes. it's people with complex money, more businesses, more that they can just forget or whatever. i would like to turn it around. i share my friend the chairman's concern about employment opportunities and growing the economy. i gave you at the beginning of the hearing an economic report, which i'm going to ask unanimous consent to put into the record from standard and poor's rating services that talks about the impact of infrastructure voechlt. >> without objection. >> thank you very much, mr. chairman. and it says here that a $1.3

billion investment in real terms in 2015 would likely add 29,000 jobs. it would add $2 billion in real economic growth, and reduce the federal deficit by $200 million in constant dollars for that year. now, i know you haven't examined this in detail, and i didn't want to ambush you, but is this sort of finding consistent with what cbo has done in the past and looking at the benefit of infrastructure investment? >> yes, congressman. when we looked at different methods the congress might use to stimulate economic activity on a number of owe occasions in the past years, we identified what could pay longer term dividends in terms of facilitating the flow of commerce in the country. >> i want to say if the

republican budget, which has no new federal projects in the next 15 months, and a 30% reduction in federal infrastructure spending over the next ten years were enacted works that potentially depress economic growth? >> time expired. >> we think less infrastructure investment would hold down economic growth in the long term. that is one the factors we weighed in this report. as you know we have not studied that particular resolution. >> i would note for the gentleman for the record, all it does is follow baseline. mr. flores. >> thank you, mr. chairman. dr. elmendorf, thank you for joining us. >> i would like to shift gears and you talk about the cbo cost estimate for hr-3230 for the health care issues facing the nation today. in your estimate in a nutshell, you said, not you, the cbo said it would cost about $22 billion

in fiscal '16 for hr-3230. and if the bill was fully implemented by '16 it would be $30 billion. the question that arises is, if current costs today in the va or 6.5 billion enrollees how can we have a more than doubling cost when we have a slight potential increase of the number people? i will break this in part. this is hr-3230. those currently enrolled in veterans health care, how does the cbo estimate it would affect the health care utilized for veterans? >> the senate adopted the house number so the estimate says hr-3230, but it is passed by the senate. >> talk about the senate bill then. >> i think the key issue here that i think surprised me when i

learned it and surprised some people, for the veterans enrolled in va health care today, they get only about 1/3 of their care through the va system, they get 2/3 other ways. what this legislation would do is to enable veterans who couldn't get into a veterans facility to have the care they are getting through their current doctors outside of va paid for by va. because the veteran system has very low co-payments relative to private insurance, there is a financial incentive to have more the health care they are already getting through their doctor to kip getting through the same doctors but have va pay to save on their co-payment. we think there would be an increase in terms of the shared health care spending for the veterans currently enrolled, they would go from having about 1/3 paid for to having 55% paid for through va. then there are new people we think don't get health care through va at all who would start to get health care through

va. they are a much smaller part. >> that is the second part of my question. what's the empirical evidence to jump to 30% in the report to 55%, almost double. how does the cbo develop that number? did you have any empirical evidence? was it swag, what? help me out here. >> so there are -- we have empirical evidence about the different of co-payments what people are paying out of pocket versus other places. then there is a body of evidence about how people respond to the cost of health care and their decision about where to get the care or in this case who to get to pay for the care. i'm not aware of evidence directly about a change in the opportunities for veterans enrolled in va health care. this is a new approach really. there is a great deal of uncertainty in your estimate. i wouldn't pretend otherwise. there is basic in evidence general about how people respond to changes in the cost of care

we drew on. >> it does sound like there is substantial uncertainty in the estimates. we don't isle know we don't have an actual fact pattern to rely on historically. >> we don't have evidence as close to this particular question as we would want, yes. >> what it's impact on health care utilization by veterans who are eligible for veterans health care but who are not currently enrolled in veterans health care? >> congressman, we think only a small percentage about 15% to 20% of those who are not enrolled in va health care would choose to enroll under this program eventually. we don't get to that 15% or 20% in the couple of years the program is scheduled. >> we are working with the cbo to get the numbers. it's hard for any of us to think it's credible our costs will double when we are not talking about a big expansion in the

population or the utilization of health care. i have a question for the record since we are running out of time. one of the things that came out earlier was the impact of immigration reform. i think your language was, increase in the size of the labor force. since we are talking about the size of the labor force, as it was said earlier in the conversation today in this hearing, the labor force participation rate is at a long-term low. based on some of the analytics i've seen, the difference between labor force participation rate today and on a historical trend is about 4.7 million workers. i would like for you to supplementally answer. what is the impact on gdp and impact on the deficit? thank you. i yield back. >> thank you. mr. schrader. >> thank you. mr. elmendorf, how have your projections for net federal

health care spending changed from before enactment of the affordable care act and since the affordable care act has been in play? >> so as we show in this report, congressman, between our 2010 long-term projections and 2014 long-term projections, we reduced our projection of federal health care spending as a share of gdp in 2039 by 1.5% of gdp. that is a substantial reduction relative to what we had, down to 8% from. about 9.5% to 8% since 2010. i don't have a comparison over the long term from before 2010. essentially the affordable care act raised certain kinds of federal health care spending, paid for that partly by cutting some other kinds of federal health care spending, on balance we thought raised federal health care spending. what's happened since that point is that we have observed, everyone observed a great slowing in federal health care costs and in private health care

costs, as well. we and others have done a great deal of analysis trying to understand the sources of that. it's hard to know exactly what's happening, but we think it's been appropriate for us to substantially reduce our projection of federal health care spending in the next ten years by more than $1 trillion and by quite a bit in the more distant future. judge, would you say that affordable care act is part of the reason that deficit has dgoe down or is it totally explained because we had a recession? >> we don't think it's totally explained because we had a recession. how much role it played there isn't consensus around. affordable care act did specific things to slow health care spending in some programs. it reduced the rate of payment updates in medicare. that is directly holding down medicare spending. also pushed up health care spending by expanding eligibility for federal subsidies. whether the aca is matter for

national slowdown in health care costs beyond these direct pieces we don't know. >> the affordable care act does reduce our deficit projection? >> by our estimate, yes. >> how much will -- lots of reductions in our discretionary spending. given the graphs and sources of future years, what substantial role will cutting our discretionary expenses even more make, especially begin that graph you have on page 23? >> under current law, federal defense spending and federal nondefense discretionary spending will be smaller shares of the economy by the end of this decade. at any point in more than 50 years as far back as those data are reported that way. those cuts will -- the exact

impact will depend how congress will meet those caps. the actual appropriations happen on a year on year basis. we would be devoting a smaller share of our resources to a very large collection of federal services. if, for example, if federal investment stayed the same share of nondefense discretionary spending as historically, which has been half, it would be falling to the smallest share of gdp we've seen in more than 50 years. that would slow economic growth, we think. federal investments in infrastructure, education, research and development we think would contribute to economic growth and reductions and those amount was slow growth. >> very good. your discussion on the aging of america. a good point was made that we need to remember a lot of our problems are the social safety net programs which are very, very real.

are not the result of outlandish spending, nefarious plots by different presidents over time or rampant spending. it's a fact of aging. could you reiterate those figures with medicare and social security, how much the increases are a result of the aging? just simple aging of our population? >> yes. social security and the major health care programs, the growth in spending as a shared gdp over the next 25 years, 55% we estimate will be the aging of the population. another 1/4 will be faster growth of health care costs per beneficiary. the remaining fifth to the expansion of federal health care programs. >> thank you. mr. chairman, i would like to get serious about our debt deficit at some point in time. would hope the committee next cycle might entertain an actual law, a budget resolution, house resolution that we would make law so we could hold ourselves and our appropriators and

authorize committees all to account. i think that would help us substantially. >> fantastic. i would encourage the gentleman to look at ms. black's bill which does do that. with that, ms. black. >> thank you, mr. chairman. i haven't had an opportunity to go through your report entirely, about you wayn't to go back to the line of questioning from my colleague from california having to do with comprehensive tax reform. i know that all the folks in this room know that the house passed budget did propose that we would have a renn a you-neutral tax reform where the top rates on both businesses and individuals would be set at 25%, and most those tax breaks and loopholes would be ended. of course this proposal would follow recommendations we heard from economists and come before our committees and testifying. it would follow the president's own fiscal committee's recommendations for designing an effective tax code, one that would have a broad base and have

few distortions and loopholes and marginal rates. what is the economic impact of a tax code with high marginal rate, complexity and distortions through deductions, credits and preferences. what would, in youres es timati be? >> as a general matter, moving from our current tax code to a tax code with broader base and lower rates would probably strengthen the economy. how much it would strengthen commit would depend on the details of the reform. as you know, the devil is in the detail on tax reform. as a general matter, yes we share the very widely held opinion among analysts that lower rates and a broader base would encourage more work, more saving, thus would expand the economy long term relative to

the current tax code. >> just to follow through on that, so if the economy is expanded, the economy begins to grow, what would be the effect of the revenue on that? >> so that would increase revenues relative to what would happen in our current gdp. and we offered when the joint select committee deficit reduction was considering deficit reduction plans, we offered to do an analysis of the macroeconomic effects of tax reform they were considering as part of their package. they didn't conclude with a package. there was no analysis to be done. we do an analysis essentially every year of the president's budget proposal we do that macroeconomic analysis. already our analysis of the straight budgetary effects, but we have almost completed our analysis of the macroeconomic effects, as well. that takes onboard the effects of changes in marginal tax rates as well as other features of the president's proposals. we can do that for other

proposals the congress would bring us to. >> i can't end this conversation without applauding the ways and means committee, shamefully which i say that shamefully and proudly that i am a member and we have a draft copy for people to look at that does just that. if we could get good conversation going bipartisanally and the wouldn't come onboard, i think we would see a change in the economy as you and economists and all the folks that talked about this said. i don't have much time left. you are not going to be able to answer this, but i'm going to send a letter to ask you to give me ideas on this what i would like to know, as you are doing all these analysis and especially on the aca, all the changes that have been made in the aca, changes or delays. i don't know whether they are in this report. maybe they are. i have not read through it. i would like to know the

economic impact of those changes of the delays that are not going to put penalties in place, and what will that mean for our long-term as we look long term if they were to be sustained or short term, the difference that's making on what the projection was on the collections that would take place from all those changes that have occurred? i would like to have some information on that. if you could point me to something in your report that, would be great, as well. >> we are happy to do what we can on that front. this report does not touch on that. this report takes our current law projections. all those current law projections incorporate whatever has been done administratively that might have changed the way a law is implemented the way we initially expected when it was first put into law. that's true for all sorts of government programs including the affordable care act. what we can't do at this point readily, and we tried to explain

this in answers to questions for the record on a hearing on the senate side. we can't go back and say what effect the affordable care act would have relative to pre-affordable care act law. would be the effects of a change in law relative to a baseline that doesn't have that law it in. we have affordable care act in the baseline. there have been four years of medicare changes and so on that are based on what's in that act. we don't have a projection of a baseline without it, which we can compare the affordable care act. the one exception to that statement is for the coverage provisions because those are just getting started now, the baseline for the last four years, the data don't have the effects of those provisions in them. that piece is to start out with data that don't have those provision and build those provisions in our baseline. for everything else in the affordable care act, revenue provisions, other sorts of

medicaid provisions, we have a baseline that includes the effects of all those provisions as they're unfolding. we can't go back and do an analysis in any clear way what effects those provisions would have in an isolated sense. we are happy to talk and see if we can provide an explanation helpful to you. judge, thank you. >> thank you, dr. elmendorf. several times this morning, you and others said you got basically two options for addressing this long term debt and deficit problem. one is reducing costs in our retirement and health safety net programs and increasing revenues through taxation. it does seem to me that there is a third way that we are not talking about nearly enough today. that is growing the economy and actually reducing costs and improving the efficiency of that health care system that is so central to some of those

projections. so i just want to ask you and i know you can't give me specific numbers because there are all sorts of assumptions that would need to exist. you continue to assume in your projections that health care costs will rise at a rate faster than the economy will grow, correct? >> yes. that's right, congressman. >> i would suggest i think congress would be crazy to allow that to continue, to sit back as if it were powerless to address that. if we were able to give medicare a chance to negotiate for better drug prices and get hold of the rampant fraud that is in medicare part d if we continue with payment reforms that reward physicians to make people healthier, there are all sorts of things we can and shut be doing to address that side of the problem. if we can do that and bring health care costs increases below the rate of growth for the economy, what does that do to your projections? >> i think you are right there are important opportunities in those areas.

obviously private health care providers and insurers are pursuing and congress could pursue, as well, to try to push the health care sector along. if you could find ways that would produce substantial savings relative to our projections that would be good for the budget outlook, will reduce the need to make other sorts of changes. i would say in medicare, for example, the rate of excess cost growth is excess of not saying it's bad necessarily, but the rate which health care costs growth exceeds growth in gdp. that excess cost in medicare is very low over this coming decade. because of changes congress already put into law. that means that pushing that down further would be harder than the progress you made so far. >> down a little bit would translate to big numbers. >> if you push growth rate down a little bit for a long time, that can make a big difference in the numbers. >> it doesn't have to be a conversation only about slashing

benefits. it can be making health care more efficient? >> it certainly can be. whether you can make enough progress there to avoid the other conversation we are very doubtful of. but every part helps. i don't mean to discourage the direction you are considering. i'm emphasizing that the gap between spending and revenues under current law is quite large. you would need to make tremendous progress. also our skepticism is not the tremendous improvements can't be made in the health care system. the question is are there provisions that you put into law with your colleagues today that would accomplish those changes beyond what will already happen under the laws in place and the work of people in the health care system. >> doctor elmendorf, you are surprised by the efficiencies we've already seen through the affordable care act. if we could rewind to 2008 and what you might have been projecting. you dramatically reduced your projections due to reforms we put in place.

assuming we stand still i understand your point. if we go down this road, isn't it fair to say we could see similar upside improvement in these numbers? >> we've been surprised by efficiencies achieved. whether they are because of the affordable health care act we don't know. we could be surprised in the up side again. we look explicitly as a scenario which health care costs grow much more slowly in medicare and medicaid than projected. >> i want to ask about the middle class. democrats are concerned about the loss of middle class opportunities, growing concentration of wealth and income disparity. what does this do to the economy over the next 25 years, both if we don't address this and also if we do create some middle class opportunity and address stagnant wages and other problems? if could you, are there any

assumptions about climate change in your projections? if not why not? >> on middle class question, for any given level of gdp we project here, distribution of income has budgetary effects and they cut in various directions. more income for high income people increases individual income tax revenue because they pay at higher tax rates, decreases payroll tax revenue because they don't pay payroll tax on the high incomes. income distribution matters for the cost federal benefit programs. a variety of direct budgetary effects. what i think you are more interested in is the overall economic issues. we have seen for a few decades a widening of the income distributions. it has consequences for the economy and for society that we have not tried to quantify

directly. on climate change, there noise specific effect built into our projections for the next 25 years. >> thank you. i would ask members try not to ask a long question with four seconds left to go. because we have all these other members we are trying to get to. thank you. >> thank you, mr. chair. thank you for being here today. i want to call your attention to page 3 and also page 13 and beyond of the sections i'm calling your attention to address, at least to some degree the consequences of staying on this path we are on we refer to as unsustainable. i want to give you an opportunity to respond to my conclusion. i've only had a cursory review of this. you've got running room here if there is more than i need to know, but i am a business man. here i am. i am surprised and disappointed.

i've been serving 3 1/2 years in public service. in the business sector, these numbers, these metrics are quite well known. a bank can look at your liquidity ratio, all types of indices and know where you are and tell you if you are in almost a green, yellow, orange range. here it seems like you are struggling to try to articulate the real impact of our failure to address our fiscal situation. it does remind me a little bit, if you will, of almost like luc warm or room temperature oatmeal. i don't think you are doing this intentionally, but i don't think you are helping us connect the dots on what is going to happen on a practical level to hard-working american families if we stay on this path. i'll ask you or give you an opportunity to help us please.

>> we try to quantify the effects of the fiscal path we are on on overall gdp and income for each family, on average. in chapter 6, which you may not have gotten to yet. it's a long and complicated report. in chapter 6 we talk about the effects, quantify the effects of the current path and alternative snare yoes on real xwfrnincome 2039. under current law we think real income per person would be $76,000 in 2039. if deficits were smaller by amounts specified, real income could be up to $78,000 or $80,000. if deficits are large, real income would be lower than $76,000. >> i would submit as time goes on, the severity of the impact

on hard-working american family is going to increase. i think each and every report you present to us, i hope we are goi going to give good news at some point. the risk we are taking on is heightened. em's not an alarmist, but i am a realist. it troubles me greatly, i think all of us, democrats and republicans alike. let me pivot. i hear the call for a balanced approach. as i see the last 3 1/2 years, i know there is $1 trillion of tax revenue embedded in what i think of the unaffordable care act and another $800 billion that came at us at the fiscal cliff. is there anything in your recollection this last year, 3 1/2 years or so that's looked like a balanced approach on reforming the mandatory spending side? all i see is $1.8 trillion,

increase in taxes, and as i look at it, my democratic friends, dollar for dollar owe us about $1.8 billion -- excuse me, $1.8 trillion in mandatory reforms just to be dollar for dollar, which is balanced approach means nothing less than a dollar to dollar. >> the last 3 1/2 years, you're right. there have not been substantial changes in the mandatory spending programs. congress agreed on limits on discretionary spending going forward. >> i think we've done a reasonable job. >> and sequestration through the budget control act. >> our numbers are pretty good right? we had about $1 trillion in the affordable care act, to be technically correct, but also $800 billion on the fiscal cliff, roughly, correct? >> it's tricky. from our point of view, we are supposed to follow current law. what congress did in 2012 was extend a lot of expiring tax provisions. our projections got worse. >> we do have $1.8 trillion over

ten years coming at us we didn't have a few years ago. we haven't had any commensurate equal reduction in mandatory spending. i thank you for being here and thank you for the report you provided. i yield back the remainder of my time. >> thank you. >> thank you, mr. chairman. welcome barks, mr. elmendorf. you are a breath of fresh air. correct me as i inject some thoughts here. we've got the lowest deficit since 2008, correct or incorrect? >> correct. >> we have the fewest amount of federal employees in nine years, correct or incorrect? >> i don't know offhand, congressman.

>> in the report last week in the "wall street journal," that's what it said. to those who are talking about the fact that, and you said it yourself, the general growth is not a major problem. when you say general growth, i take that to mean everything but entitlements, et cetera, am i correct? >> yes. that's right. >> okay. so the general growth there has been, it looks like night good shape. it's not a major problem right now. >> it's relative to our history that we are reducing spending on those things relative to the size of the economy. >> if we were to cut anything else in the future, since that growth, the general growth we have under control, that's not my word, that we have to look to the entitlements in order to make further cuts, correct? >> that logic is why most analysts focus at this point on changes in the mandatory programs and the benefit programs. >> i like what your report does

as it did in september to link the amount of growth in terms of revenue. how much revenue the government is bringing in and how much we've encumbered in how many bills we have. and that seems to be borne out in your latest report to us. aside from the decrease in spending on federal health programs, not a whole lot has changed in this report since september. that is not for lack of trying. i'm a member of the ways and means committee. over the past few months we reported 14 separate bills that would make various temporary tax extenders permanent. we had that referred to before this morning. a combined cost of $825 billion

and still counting. none of this has been paid for. unli unlike chairman camp and ryan's tax reform was revenue neutral over ten years, no the a single dime of that spending has been offset i just referred to. not a single dime. mr. elmendorf, the extended baseline that your report is based on assumes that all the tax extenders expire or stay expired, correct? >> yes. that's right, congressman. >> so your total deficit projection of $7.6 trillion between 2015 and 2024 does not include that $825 billion in additional red ink, still counting, that would have been

added to the deficit if the majority had their way, plus any other extenders that might choose to make permanent, that is correct? >> does not include any of those bills. >> these tax cuts aren't just extended ten years, mr. elmendorf. they're made permanent. completely unpaid for. can you talk a little bit about what kind of impact that policy choice would have on our deficits and economic growth over the 40-year period which your report refers to? >> if those provisions were enacted and things were enacted into law and nothing else was changed at the same time, then the deficit outlook would get worse. the larger debt we project would lead to further reduction in future income relative to the numbers we have here in the report. >> mr. elmendorf, you lowered your projection for gdp in 2039

by 4%. i understand that part of that is due to the lower inflation expectations. but part of that is a reduction in your projection on the inflation adjusted gdp. >> yes. >> can you explain your reasons for the lower projection of our economic growth? >> in seven seconds or less. >> you got it. the projections, that changed, congressman, reflects a change we made in our ten-year projection in what we published in february. it was a combination of data about productivity growth and capital investment that caused us to bring down our projection of real inflation-adjusted gdp. >> thank you. >> thank you, mr. chairman. thank you, mr. elmendorf. i would like to follow up on my colleague's last question. if you could please compare the growth of the economy since 2007 recession and compare that to

the growth in the economy after the recession in the '80s, both in the time of recovery and rate of recovery. >> so this recovery has been quite slow relative to essentially all the post world war ii experience. and we and others have concluded that most of that slow pace reflects the nature of the housing bubble and financial crisis that led to this recession. other people reached other conclusions about the primary causes of that slow pace. >> so do you see any other policy differences with the recession back in the '80s versus here that has contributed to the slow growth other than what you said the initial cause was with the housing bubble? you just indicated to my colleague mr. pascrell that there is capital investment has

been less, so what are some of the policy differences enacted in the '80s versus what you've seen here or not seen here that may have contributed to this? >> congresswoman, we haven't tried to quantify the policy influences directly. people who looked at the experience of other countries that have gone through financial crises as we went through generally found slow recoveries. we think that the initial actions by the federal government to stabilize the financial system, to boost spending and cut taxes, the federal reserve to provide stimulus through low interest rates, we think those actions did help to boost the economy relative to what would have happened without them, but we think they were just not enough to overcome the other forces. >> i doubt if you looked at it, probably not part of perhaps your analysis, but i would say that the uncertainty coming from

washington has contributed to it, as i visit with the business owners in,000 district, they have capital, they want to expand, they want to hire and grow their business, but because of the policies coming out of i the unaffordable care act, the high energy costs, the overregulation, that has caused them to hold on to that capital and to not grow and expand. so has that been taken to account any of those things? >> so we think that is a factor as well. we've written and spoken about that some in the past. there have been an effort by some economists, including some on our panel of economic advisers, to try to quantify the affects of policy uncertainty. that is very hard. but we think that is a factor. >> very good. switching gears, i'm a member of the armed services committee, proudly. your report alludes to the national security concern with

the rising debt. certainly i am very concerned with that as well. but could you explain and expound on your concerns? >> i think the issue, congresswoman, is simply as you and your colleagues look for ways to take an unsustainable path and make it sustainable, one of the things you might push on is federal spending for defense. and we can't speak to how much money is required to mount whatever defense you and your colleagues think is appropriate. but the concern is that squeezing that amount of money that we spend on defense may create vulnerabilities for our country on an ongoing basis, but also if the debt is high and some international crisis develops, having so much debt may make it more difficult for us to then take the actions that you would like to take under those circumstances. >> i agree. it's a very, very dangerous world that we live in right now. there's so many potential conflicts and needs to certainly protect our citizens. if the current projections continue with the sequestration

on the defense, we will have the smallest armies before world war ii, the smallest air force ever, the smallest marines before 9/11, and the smallest navy before world war i. i don't think we want to go there. i think we need to get our priorities right and look at the entire budget like we have done. appreciate you raising that concern and all of your work. i yield back. >> thank you. i would just add we wrote a report a year ago that tried to quantify for you and your colleagues just how much the force structure would need to be cut to meet some of the targets for discretionary spending if you didn't make other sorts of changes. we also talked about other sorts of changes you might make in the defense budget as well. so we're trying to provide information as you make those decisions. >> thank you. >> thank you, mr. chairman. dr. elmendorf, welcome back. i want to return to immigration for just a second because we've talked about social security and the long-term prospects for social security. when you did your analysis of

the senate immigration bill, did you discuss the impact of that proposal on social security specifically? >> i don't recall that we did, congressman, but i might be wrong. >> would you -- i'll postulate to you what i assume to be the case. immigration reform, you would have a significant number of younger people in the work force who would be contributing to social security and not -- and medicare, and not collecting benefits for 35 to 40 years. so the long-term -- at least the intermediate terms of the impact of immigration reform should be very positive on the social security front. is that correct? >> i think that's right, congressman. our cost estimate probably did break out the increased revenues into those that are off budget for social security and on budget, meaning the rest of tax revenue. i don't think we put to together. and there's not much change in social security outlays over the coming decade because of

immigration reform. ic i think you must be right. >> thank you. from time to time i've raised my concerns about how cbo's methodology, not being critical of it, but the methodology combined with our restrictions prevent us from doing things that are in the long term benefit to both the country and the taxpayer. one of the things that i'm interested in now relates to energy savings performance contracts because i know there's strong bipartisan support for those. i'm a member of this committee and the energy commerce committee, so i'm interested in making sure we have the tools necessary to be able to take advantage of things like those contracts, which save the federal government potentially a lot of money. that's my understanding that there's a piece of legislation now that would extend the goals for two years, and it triggered a cbo score and that you and cbo and omb have a different perspective on this. could you explain how cbo scores

these and whether there's a chance that you and omb could get together so we can move forward? >> so i'm sorry. i'm not aware of what omb's view is. i will look into that. and we're working hard ourselves right now on doing another set of estimates of this for the congress and trying to explain more clearly and hopefully more persuasively than we have in the past why we reached the estimates we have reached. i think there are some substantive issues and some budget procedural issues i'll touch on. the substantive issue is the way these contracts work. the savings up front, meaning for a number of years well past the ten-year budget window, go to the people who are installing the new equipment. so the substantive issue, the savings tend to come very long term. i think you're right to be concerned that focus on a certain budget window may be distorting in some way. we try what we can to give you

information about the longer term. there's also a budget procedural issue which is just if the government signs a contract now and has made a commitment now, so the full cost of that basically appear as direct spending today and the savings would be on the discretionary side later. those are categories that not because of us, because the way the budget committee works and the budget process works, don't get put together very readily. but we're working on this issue some more, congressman. we'll be in touch with you as we make more headway. >> i appreciate it very much. we have a number of opportunities, i think, like this that long term will save the country money, save the taxpayers money. we need to be able to figure out how to do that. thank you very much. i yield back. >> thank you, mr. lankford. >> thank you for being here. let me ask you a couple quick questions. one is just some background. how does cbo score or evaluate? federal reserve now has $4.4 trillion in assets they've said they're going to unwind. no one is certain how that's going to happen. how does that figure into your

long-term look on what the federal reserve is going to do with $4.4 trillion in assets? >> it affects our revenue projections over the coming decade because, as you know, the federal reserve turns over to the government any extra money it earns on its portfolio. beyond the coming decade, it doesn't matter directly because for these projections, we simply take the federal reserve receipts in the tenth year as a share of gdp and hold those constant going forward. >> there's no assumption built into this where the federal reserve -- i should say it this way. your assumption is the federal reserve holds that $4.4 trillion, not trying to sell -- >> we presume they will be changing the size and the composition of the portfolio over the coming decade. the projections we released in february and the update in august will try to be expolice

i -- explicit about their actions. >> so the february report will have your assumptions in there. >> yes. if you want more detail than with provided, we're happy to offer that. >> the expectation of how much we'll pay in interest, there's a change in what your interest projections are but not a nominal dollar, actual change of what that would be. would that also be in the february report as well? >> in this -- sorry, federal reserve or generally the budget? >> switching over to the budget as a whole. last february in the report is $880 billion is what you anticipated ten years from now will be our single year nominal dollar interest payment. how does that change with the updated numbers? >> in this report, we deliberately do not change anything in the first ten years. that's just the design kree tieron. we only think about projections beyond that. in our august update, this work is under way now, of course, we're revisiting all of our projections about the economy and the budget for the next decade. so in our august reported, we

will be specific about -- with some new estimate. i don't know what direction it will go or by how much yet. but we'll be explicit about our projection of interest payments in nominal dollars over the coming decade. >> that will come out when? >> at some point. usually release this report in late august. we have not picked a date yet. >> just sometime in august. page 51, you're referencing on social security disability and sustainabili sustainability, funds exhaustion date. under cbo extended baseline disability insurance trust fund would be exhausted in fiscal year 2017. has that date changed from previous estimates? >> no, it has not. again, we don't change anything in the ten-year window in this report. >> okay. same thing on page 104 and 105. you have some timeframe here dealing with disability. look at page 105. i want you to be able to walk me through this number.

dealing with disability. >> yes. >> another demographic variable that affects the budget is the rate of disability incidents defined here as the rate at which people become eligible for disability programs. cbo projects that the people who have worked long enough to qualify for disability benefits who are not yet receiving them an average of 5.6 per 1,000 will qualify each year after 2024. coincide that with the chart on the facing page, able a-1, rate of disability incidents per 1,000 at 1.2. so kind of walk me through those two numbers there. >> oh, so congressman, in table a-1, it's the rate of mortality decline. the rate at which people will be, we think people will live longer over time. the row below that is the rate of disability incidents. that is the same 5.6 number that we report in the text. and this projection of disability is a little higher than the rate predicted by the social security trustees and

those enter the report. that's a change we made last year. this is the same projection we made last year, but it was different last year from before that. we thought the evidence suggested that the rates would be a little higher than the social security trustees were using. so we moved away from their projection and established separate ones of our own. >> thank you. i yield back. >> thank you. mr. cardenas. >> thank you, mr. chairman. good to see you, dr. elmendorf. appreciate your report and also your diligence in trying to be as straightforward as possible on your answers today. when it comes to raising the debt limit, i have a question about what may be the ramifications of -- for the u.s. and the global credit markets if we fail to raise the debt limit going forward. >> we think that a failure to raise the debt limit when it is -- when we are bumping up against it poses very significant risks.

we don't know what would happen because we haven't actually done that before as a country. we have not let that debt limit lapse for any period of time. but if it were to happen, then there could be very large and negative ramifications for the financial system and for the u.s. economy and maybe the global economy. >> when you say maybe the global economy, is that because we're so interconnected and perhaps because we're the largest economy on the planet? >> so the economy is -- global economy is very interconnected. we do play a particular role, especially treasury debt plays a particular role because it is viewed as such a safe asset. if that safety were called into doubt in a significant way, that would be very disruptive to what a lot of financial institutions around the world and a lot of investors around the world are doing as well as potentially very costly for the u.s. treasury in future borrowing. >> okay.

now, when it comes to health care, you already spoke about -- somebody asked you questions about the projections, et cetera. let me go to in 2009 the cbo estimated that spending for medicare and medicaid would reach 10.5% of the gdp in the year 2039. this year the cbo estimates that combined federal spending for medicare, medicaid, c.h.i.p. and the affordable care act coverage expansions will reach about 8% in 2039. that looks like it's a 24% increase. >> decrease. >> i'm sorry, decrease. while health spending is expected to increase from today's levels as a result of ageing population and health costs, is the outlook for federal health spending as much improved from the pre-affordable care act days? >> so unfortunately, i don't have the 2009 projections with me. this report does a comparison

with the 2010 projections. certainly relative to those, the outlook is a good deal brighter. we've seen slow growth now in federal health care spending and national health care spending for a number of years in a way that's persuaded us and other analysts that there are structural changes going on, and we've taken some of those on board, even for our projections out 25 years. >> the -- that's a significant reduction in health projections. what were the main factors in this report, why it's come out that way? >> the projections this year are fairly similar. just a little below what they were last year in federal health care spending as a share of gdp. the factors here are primarily the data we have -- that have come in. as i say, both the federal government programs and within those programs in part a of medicare and part b of medicare and part d and in medicaid, but also data in the private sector. we look ourselves very closely at what's happened in medicare.

other analysts have looked more at what's happening in the entire health care system. the conclusion from that work is that the weak economy probably plays some role in the national health care spending slowdown, but there's much more than that for the country. in medicare, in fact, we don't think the weak economy has play much a role at all. so there are other structural changes going on. when we talk to people in the health care system, they're clearly working very hard to make their operations more efficient than they've been. the question for us and for everyone is whether they can keep that going. whether they will under the current incentives provided by law continue to achieve more savings, whether that process will sort of wrap up for at least a while. in late 1990s what we saw was a marked slowdown in u.s. health care spending growth. then the 2000s, spending growth came back up again.

we don't know how persistent this slowdown will be. we think our best projection is it will persist for a while. that's why we've taken down federal health care spending projections by a lot in this coming decade and by a significant extent, as you note, even out 25 years. >> but the major significant policy change is the affordable care act? >> that's the biggest policy change. we don't know how big a role that has played relative to all the other factors. >> thank you. >> i thank the chairman. welcome again, dr. elmendorf. >> congressman. >> always a learning experience to hear from you. appreciate you being back. i want to pick up on where mr. huffman was going earlier. what's indicated on page 5 of your report that in order to solve the problems you testified and we all know too well, we have to do a combination, perhaps, of raising revenue and decreasing spending/costs.

but the wording here on page 5 indicates that we could raise revenue, decrease spending, or do a combination of the both. so clearly i understand how we could decrease spending, reduce costs to get us back under control regarding our deficits and debt. but i'm under the impression that we can't just increase revenue and solve this problem. yet page 5 seems to think -- say that's an option. is that -- am i reading this correctly or incorrectly? >> yes, congressman. raising revenue is an option for dealing with imbalance. >> i mean solely. raising revenue solely as a solution to this. >> well, depends what the this is. the focus here in this report is on the next 25 years. and can revenue be raised enough to have the ratio of debt to gdp in 2039 be the same as it is

today? yes. absolutely. >> what would that look like? how much revenue would have to be raised as a percentage of gdp? >> so i think what we said, congressman -- so if the congress were to act in 2015 and were to make the same change relative to gdp in each year from 2015 for the next 25 years, this is the fiscal gap as people define it, that would require an increase in revenue or a cut in spending of about $225 billion. >> but if we didn't cut spending, if we didn't reform these social entitlement programs -- >> increase revenue by $225 billion next year. if you did that in a way the number grew with gdp, that would be -- >> do you have any idea what that would look like going forward as a percentage of gdp? >> it's 1.2% of gdp. the way fiscal gaps are essentially defined, not by us, by people in this business who do this kind of analysis, the fiscal gap is the change in

something, spending and/or revenues, that would require each and every year to achieve some target at the end of the period. so if the target is to have the debt to be the same share of gdp it is today -- >> which is pretty high, right? >> which is quite high by historical standards. then you'd need 1.2% change of gdp. we also did estimates to bring the debt back down. that would be 2.6% over 25 years rather than 1.2%. >> and what raw numbers are those? >> 2.6% would be about $460 billion next year. so an increase of $460 billion next year growing with gdp. that would be more than $5 trillion over the coming decade and more beyond that. that's the magnitude of the change needed in spending or revenues. >> in your expert opinion, is that a pretty large magnitude? >> it's a large change, congressman, yes. >> to do it solely on tax increases? >> to do it solely in any way,

it's a large change, congressman. as we reported, to reach that goal, to bring debt back down to its historical average percentage of gdp, meaning the average for the last 40 years, 25 years from now would require if you did it all through lower spending, a cut of about 13%, if you did it all through higher revenues, an increase of about 14%. so those are large, not overwhelming, but quite large changes in either spending or revenues. >> and that just accounts for the next 10 years, 20 years? >> 25 years. >> thank you, doctor. in the minute i have remaining, i've really been trying to study our accounting methods here in congress with the eye of more transparency, especially with regarding our entitlement and other liabilities and their effects on federal debts and deficits. i've been particularly interested in accounting for these programs, primarily social security and medicare, using accrual based accounting instead

of cash based accounting. how does cbo account forunfunde? do they primarily rely on cash-based accounting or something else? >> so our analysis is primarily a cash-based accounting. when we offer projections of federal deficits and debt in the future, that takes the budget the way accounting actually happens in the budget and which most things are counted on a cash basis. the federal credit problem is different. we follow that as well. in the estimates of the imbalances in the social security trust funds and imbalance in the medicare part a trust fund, those are assessments we do on an accrual basis because that's the way those funds operate. >> thank you. mr. kildee. >> thank you, mr. chairman. thank you, dr. elmendorf. i apologize for coming in after your prepared remarks. i was over in the financial services committee with a hearing with federal reserve chair yellen, at which there are

a number of questions asked with no opportunity for the chair to answer. so i at least appreciate in this case, while i might not agree with the implications with some of the questions, the courtesy of you being able to answer the questions. i appreciate the way our colleagues on the other side have handled this hearing, at least by my observation. i also appreciate the complexity of these questions. i have been trying to figure out cbo scoring since i've been here for a year and a half. i am just going to assume that it takes more than a year and a half to completely figure it out. but i do understand that the analysis that you provide operates on the clear assumption that none of the decisions we make, spending or revenues, operate within the confines of what one would call a zero-sum game, their implications for spending beyond the effect on our current balance sheet and their implications for tax

policy beyond the implications for our annual -- this current balance sheet. so i'm really curious about your impressions of some of the actions of the house recently in enacting unpaid for tax extenders that absent some other corresponding increase in spending. this may be something you have to answer off the cuff. is it your -- would it be likely your conclusion that this type of spending through the tax code that is unpaid for will have a net positive, net negative, or neutral impact on our long-term fiscal position? >> so you're right, congressman. we've not studied the effects of those, that set of bills in particular in terms of the longer term budgetary economic effects. but we would presumably conclude that cuts in tax revenue not

offset in some other way would lead to larger deficits, larger debt, would be a drag on the economy in the future. >> and presumably -- and this is where i think we get into a real conundrum. presumably, those tax cuts would have an impact not only on the immediate effect on the deficit but effect on either our ability to invest in those long-term investments that have a payback or would simply explode the deficit. if, in fact, though cuts resulted in -- and let's just take a couple examples. significant reduction in support for pell grants and other forms of support for higher education and blows up our ability, for example, to fully fund on an ongoing basis the highway trust fund and other transportation investments, what would you think the likelihood would be that you'd have a negative score for that set of policy decisions? >> now you have a more complicated scenario,

congressman. i'm getting more leery of making off-the-cuff comments. >> feel free. >> in our analysis of the effects of different fiscal policies in this report, the channels we focus on are the effects of the amount of federal debt, the effects of changes in marginal tax rate, and the effects of changes in federal investments. we take very seriously the channel you're discussing. i just can't quantify those things. >> take the decision to fund or not fund the highway trust fund. how would you evaluate that in terms of its long-term impact on growth? >> we think and we've said, in fact, in testimony a couple months ago that if the projected shortfalls in the trust fund were addressed just by limiting federal spending for highways and mass transit to the revenue coming in, quote, that reduction would probably have significant negative consequences for the condition and performance of the nation's highway and mass transit infrastructure. in addition, unless some other

federal spending was increased, reduction in federal spending would slow economic growth and employment during the next few years relative to what it would otherwise be. >> thank you. i appreciate that. have you offered any recent discussion or commentary on the effect of extension of federal unemployment benefits and the effect that has long-term on demand for federal services and what the long-term budget tear impacts of that decision might be? >> we have not looked, to my knowledge, at longer term impacts. we have done some analysis at the request of congressman van holland of the shorter term effects of extending unemployment insurance benefits on the output of jobs. the extension of higher benefits that were in place last year would be good in the short term for economic output and for jobs. >> thank you. thank you. >> thank you very much. >> ms. lujan grisham.

>> thank you, mr. chairman. thank you, mr. elmendorf. i'm going to follow the same line of questioning, of course. our long-term budget aspects are significantly challenging, giving current rates of expenditures can and population shifts and the graying of america, as you will. and i am clear that the role of this committee, and i appreciate that leadership by the chairman -- >> watch this event on our website, c-span.org. we're going to leave the last few minutes of it now to take you live to a discussion on the access, quality, and costs of health care provider networks. this event hosted by the alliance for health reform. introductory remarks now getting started. live coverage. >> some people call it a value-oriented network. a lot of people call it controversial. some of the changes that are brought about by the reform law made it harder to hold down

costs using some of the traditional methods, making sure all policies covered things like maternity benefits and that a pre-existing medical condition didn't exclude a person from getting covered. and these new slimmer networks are a partial response to that set of changes and therefore the dynamic forces that are at work in the insurance marketplace. they're designed to help hold down costs of care and thus insurance premiums while protecting or improving quality. but some folks worry that these networks hamper provider choice or keep a patient from continuing treatment using the doctor or health facility that they've depended on. today we're going to take a closer look at those concerns and the efficacy of these new networks themselves.

we'll also hear about some of the efforts to regulate them. and we're pleased to have as a partner in today's program well point, which operates bluecross plans in a dozen states and offers coverage for one in nine americans. a couple of logistical items before we get started. if you're in a mood to tweet, the hash tag is #networkadequacy. if you need wi-fi to connect before you tweet, the instructions on how to do that are on the screens, and i think on the tables in front of you as well. we've had some adjustments to the program, therefore some of the documents in your packet may not be quite up to date. if that's the case, you can get the most up-to-date versions on the alliance website, which is allhealth.org.

and in the packets that you do have, there are some important pieces of information, including speaker bios, with a lot more information than you're going to get from the verbal introductions. there's a materials list, single pager in your kits. and to the extent we had them, the powerpoint presentations we received in advance. and if you go to our website at allhealth.org, all of that is online and you can share it with your colleagues. as a matter of fact, i think one of the items we didn't get updated before we had to come on over was the selected expert list, and you'll find that on our website. there will be a video recording available in the next couple days, a transcript also a couple days after that at allhealth.org. and we commend that to you.

there is a green question card you can use to ask a question once we get to that part of the program. there's a blue evaluation form, which i plead with you to prepare to fill out and hand in so that we can improve these briefings for your best use. and if you're watching on c-span, you can find all of that background information, including speaker bios and the slides that they'll be using, at the alliance website allhealth.org. these aforementioned experts are indeed a very good program for your use. they're going to detail the trends in the composition of provider networks and explore the cost access quality trade-offs we've been talking about. we've had an active weekend at the alliance as we found out that two of our scheduled

speakers were going to be unable to join us today. but we're pleased to have excellent last-minute substitutes. and before i introduce this shiny new lineup of panelists, let me first add a word of thanks to the alliance staff. for their nimble work over the last 24 hours to allow us to proceed more or less smoothly this morning. so let me give the merest of introductions to the new lineup. let me do it all at once to keep from destroying the continuity once we get started. we have the executive vice president for policy and regulatory affairs for america's health insurance plans, where he's in charge of health care reform implementation efforts and policy activities.

we've asked dan to describe what narrow networks are, what factors ahip's members use when putting them together and operating them, and what some of the challenges are in doing that. actually, we're not going to have him first, but he's worth waiting for. and as consolation for having to wait for him, you're going to hear from paul ginsburg leading off, who's one of the country's noted health economists. he occupying the chair at the schafer center for health pollty and economics at southern california. we've asked paul to implicate the trends. following dan, we're going to turn to katherine arbuckle, who's senior vice president and chief financial officer of ascension health, the largest nonprofit health care system in

america. katherine's going to discuss ascension's experiences across the country. it has 70-plus hospitals or so and other facilities that participate in some networks and not in others. so that will be an interesting real-life experience. and finally, we're hear from brian webb, who is the manager for health legislation and policy at the national association of insurance commissioners, naic. brian is going to talk about how insurance commissioners are examining and acting on this trend and perhaps also describe some of the considerations involved in the model regulations that naic is in the middle of crafting. so let's get right to it. we're going to start with paul, and we're very happy to have you with us. >> thank you very much.

okay. got it. well, thank you. i'm really pleased to be here because i always enjoy speaking at alliance for health reform events. so today i'm going to talk about net -- i've been using the term limited networks. i think it's less charged. really about why we have these -- these plans have really been around for a long time, but with the development of the public exchanges became far more prominent and just put the issue on the radar screen of a lot more policymakers. i want to start being the economist saying that limited networks do have the potential to substantially lower costs. basically, they do this -- the beginning is identifying which providers are lower cost or

higher value. and insurance, in developing these networks, do have the opportunity to use broader measures of cost than just unit prices. one of the ironic things is that some of the measurements of providers to assess who to invite into a limited network are very parallel to some of the payment reforms you've heard about, like episode bundling, patient-centered medical homes, and the like. so quietly they're moving in the same direction. so where the savings come from. the savings come from steering volume to lower-cost providers. that's a direct thing. in addition, if you're successfully steering patients or have a good prospect of it, you can negotiate lower unit prices with some of the providers in a market. when enough plans do this in a market and enough people are involved, this will strengthen

provider incentives to lower costs. limited networks can also support integration in delivery. this is fairly new. if we're going to have provider-led plans playing a bigger role, whether the provider is the insurer or in partnership with the insurer, limited networks are critical to their being viable because it's really important to steer enrollees to the delivery system's providers. this approach through our work at the center for studying health system change sinced mid-'90s, we saw provider-led plans develop in the mid-1990s, and the whole purpose was the expectation that they could offer plans with networks limited to the system's providers. these were abandoned for the most part when limited networks

disappeared back then. i want to briefly mention the highlights of the mckenzie work about the experience in public exchanges. they estimated that narrow network plans were available to 92% of consumers using the exchanges and that broad-network plans are available to 90%. narrow network plans are a candidate for 48% of the offerings, and 60% in metropolitan areas. the key thing was that broad network offerings have premium increases 13% to 17% greater than the narrow network offerings. so what's behind the rapid growth in limited networks? i think a big basic reason is that health spending now is increasingly higher in relation to income. so -- and we all know that's from advance in technology and higher unit prices.

and it's led to a situation where broad provider choice is a luxury that fewer people can afford. but the key break with the past really was the developments of public and private health insurance exchanges. i would say there are two key things. one is the freedom from one size fits all requirements. if you're an employer and you're offering your employees a plan, there's strong pressure to make it a plan that almost everybody is going to find attractive. that's not the environment to offer a limited network plan. but with exchanges, you're freed from that because there are a lot of competitors in most exchanged and a plan can be very successful on an exchange if it appeals to just half or evenless of the population. this would be a disaster in employer-based coverage unless that employer was offering a

wide variety. the other aspect is the fact that the subsidies to consumers are fixed. you know, they're based on the second-lowest silver plan premium in a marketplace in the affordable care act or in private exchanges. they're also fixed. so it means that consumers have spending their own money for the marginal cost of a more expensive plan. okay. now, to do this, some basic tasks need to be done well, and they haven't always been done well over the past year. one is accurate and accessible consumer information on the network status of providers. and their roles for both plans and exchanges. i'm often, you know, surprised that we don't see more products on exchanges like what the

federal plan uses. it's a tool from consumer checkbook where people click on a prlan, they put the names of their providers in and see which plans those providers are in the network of. there's a need to monitor the network provider capacity. you know, there's the possibility that a lot of plans have the same providers in the network and those providers are overwhelmed. this will straighten out over time, i'm sure. also, there needs to be recognition of some of the subspecialties and the attention to physicians' hospital admitting privileges. specialties like ophthalmology and orthopedics are pretty specialized. someone who has a problem with a retina or a problem with their foot probably doesn't want to go to any old opt molgs or

orthopedist. there needs to be speedy exceptions. also, something that perhaps a responsibility of exchanges is ensuring broad network plans are also available. just a few comments on regulation of network adequacy. there clearly is a need for regulation, but there's a very high cost if the regulation goes too far. i think the key needs are basically the transparency needs and the basic tasks i mentioned. also a need to prevent risk selection strategies based on poor coverage of some specialties. and a consumer protection needs, which i would describe as basically if there's some networks that very few informed consumers would find acceptable, it's probably best that they shouldn't be on the market. i think some of the dangerous is disarming the most powerful market tool that's available to address the effects of increasing provider leverage in

negotiating with insurers. you know, prices have been going up rapidly. they explain most of the rise in spending. so the success with limited network plans is going to be important for health spending, spae especially for lower-income consumers. also, i'm concerned about interfering with some of the steps toward clinical integration. let me just talk about the politics. it's inevitable that pressure from providers to be included in narrow networks will happen. we've seen it now particularly from pediatric hospitals being particularly outspoken. and we've had any willing provider laws in a number of states that actually have been around since the 1980s which seem to be a particularly misguided response to this issue. but in contrast to the 1990s, consumers see much more of a stake of having lower-cost

products available as a choice. federal government also has a stake in how high silver plan premiums are. i'm suspecting that we'll have a much more nuanced reaction to these issues. thank you. >> there we go. well, good afternoon, everyone. it's a pleasure to be with you today. i plan to briefly cover five topics in my presentation. i'll start with some of the latest consumer satisfaction polling, and then i'll turn to how networks are focused on delivering value to consumers. then a little bit about the importance of increased choice and how those choices enhance the value proposition. then a little bit about how networks are built based on a

recent study that we commissioned. then finally i'll wrap it up with our commitment to consumers, which really focused on accessibility. the commonwealth fund recently examined attitudes about satisfaction of coverage in exchanges and found that nearly 3 out of 4 are satisfied. this is consistent with the recent morning consult poll that showed 74% are satisfied with their health plan. and directionally, this matches with what we have seen in private polling showing that more than 9 out of 10 registered voters are satisfied with their private health insurance coverage. consumers' preferences for balancing provider access for cost is another very important consideration. a recent poll indicated that

50% -- 57% of small employers would choose a smaller provider net wosh network if it resulted in a 5% reduction in their premium. and this increased to 82% if the result were a 20% reduction in premium. in another morning consult poll of consumers showed a similar preference with 58% preferring a less expensive plan with a limited network of doctors and hospitals. while health plans are focused on value by finding the right balance for consumers between quality, affordability, and choice, plans are constructed on the premise of ensuring the highest quality at the lowest price to deliver that value to the consumers. the report i mentioned finds that high-value provider networks allow for more affordable coverage options with

5% to 20% lower premiums compared to broader network plans while placing an emphasis on quality and effectiveness of providers. the mckenzie report found similar reports. many consumers are looking for this type of balance that delivers value, affordability, and choice. regarding choice, the recent mckenzie report that paul summarized in his presentation shows that consumers now have expanded choice of network offerings on the exchanges. broad networks are available to close to 90% of the population. narrow networks are available to 92%. this increased prevalence of narrow networks gives consumers a wider range of value proposition and prices among health plans. importantly, mckenzie found there is no meaningful

performance difference between broad and narrow exchange networks based on cms hospital metrics. the report explains in some detail that high-value provider networks are specifically geared toward providing personal and comprehensive care to patients in an environment where providers effectively communicate and coordinate with each other regarding the best treatment for patients. high-value networks are developed through a deliberative evolution process with providers that consider more than just fee levels. active cooperation and collaboration between health plans and participating providers is really the hallmark of success for high-value networks. performance on quality measures is the key part of the criteria used for provider selection and inclusion in a plan's network. in addition, health plans must

meet robust standards for network adequacy and access to care. professional accrediting organizations like ncua require plans to meet standards for access and availability of service and measure themselves against these standards on an annual basis. state and federal network adequacy laws ensure that consumers have access to a sufficient number and type of physicians and hospitals and health plan provider networks. importantly, network development is now occurring in a reform market where health plans have new requirements that restrict their ability to control cost, including preventive coverage requirements, limits on cost sharing and restrictions on age rating. variation in network design is one of the few tools for health plans to keep costs low for consumers while ensuring

quality. i think i'm missing a slide. there we go. we'll try to go backwards. there we go. sorry for the delay. so here's our commitment to consumers. this is an important slide. so i'll spend a little time on this. our health care system is in a period of significant change, which means now more than ever patients are looking for value and stability in their coverage. understanding this, health

plans' top priority is to provide consumers with the information they need to navigate the new system and make the decisions that are right for them. one important step health plans are taking is to improve transparency. i know paul talked a lot about this. while the use of provider networks has been a key tool in delivering value by preserving benefits, mitigating the impact of rising cost, and promoting quality of care, consumers may not be aware of the critical role networks play, how they work, or understand which providers are in their networks. consumers should have the information they need to make the right choices for themselves and their families, and that is why health plans support ensuring greater transparency of network design by providing accessible, understandable, and up-to-date information about which providers are in a network and timely notice to consumers when providers leave the network. providing a summary of information about how plans put together their tailored networks

to balance cost, quality, and access considerations. providing information on how consumers can appeal plan decisions, submit complaints, or obtain referrals to out-of-network care when necessary. and we also support continuity of care for a minimum of 30 days for individuals undergoing an active course of treatment for conditions that require more complex care for serious terminal illnesses and for mental health. that wraps up my presentation. thank you, and i look forward to our discussion. >> all right. thanks very much, dan. we'll turn now to katherine arbuckle from ascension. >> thank you, everyone, in the room. hello? >> press it and wait a couple

seconds. they're temperamental. >> okay. very good. well, thank you, all, everyone in the room, for allowing me on behalf of ascension health to have this opportunity to have this important discussion with you today. just a little background. ascension health is, as ed mentioned, the u.s.'s largest catholic health system as well as the largest not for profit health system. we have more than 1900 sites of care in 23 states and the district of columbia. and all the health systems that are sponsored i dby ascension health offer plans on the exchanges. however, these participation decisions are made at the local community level, and as a result, we have experienced pretty much on all sides of the issue. in some communities, we're the name providers in the narrow networks and named in all of the narrow networks offered.

in other markets, we are included in some narrow networks but excluded from others. in some markets, we offer our own offering as a narrow network plan of our own. finally, we participate in the non-narrow market, the broad offerings as has been described with other providers in those markets. i would generalize that overall in most of our markets, we're in some form of exchange product because generally it fits with our mission to serve the low income and vulnerable since that's who's accessing these products on the exchange. so i do want to comment about these narrow networks and how they can benefit payers, patients, and providers. and we do believe there is benefit in narrow networks. it can be done through the offering of what we call clinically integrated care.

and that's especially helpful for those with chronic diseases. so some of these benefits that you can outline when you have this tiekter integration is providers can communicate more openly and easily, sharing information between them about patients. and that's especially important and helpful with electronic health platforms when the providers are on the same platform. this can reduce duplicate testing and even conflicting treatment. payers and providers can share more meaningful health care data, work together on health care analytics to determine what is the right improvement we can make to quality and cost. the providers within a clinically integrated network can be more familiar with each other, not just their medical practice protocols but their administrative practices, all allowing handoffs to be much smoother with less error. and also, these tighter relationships allow these providers to comment with the

payers back to them where there are service needs and things that need to be improved. so i'll go on to what we also want to talk about, though. that is there needs to be adequate consumer protection and education, especially for these families who are accessing these products offered through the exchanges. according to hhs, 85% of individuals that are purchasing products on the exchanges qualify for an insurance subsidy. so i think, therefore, we can conclude a couple things. one, they tend to be at the lower end of the income scale. and two, a good number of them did not have insurance previously. in fact, one study we've seen 57% did not have insurance before. so i'm glad we're talking about this question today. so starting with consumer protection and education. we've invested as ascension health in 200 individuals to

become certified application counselors. they've received federal training, and they are there to help patients access the networks and understand the website healthcare.gov. but what we've learned is this counseling takes a lot of time. not just for those patients who arrive asking for this counseling and this help, but many times when they arrive with the need of medical care. that's hardly the time to learn that's when your provider of choice is not in your network. this leads to confusion. it leads to frustration and sometimes anger. and i will tell you in one example in wisconsin, a patient arrived at our emergency room in critical condition and needing immediate intensive care. unfortunately, he had just signed up with a health plan that did not include us in his network. we admitted the patient because that's what the patient and the family wanted, but neither the family nor us knew what that patient's liability or financial obligation would be for that bill when it was completed.

but we were fairly confident as ascension health knowing we had admitted that if this patient is lower income, which likely they are, they will qualify for charity, and we'll be left with the uncompensated care, again because of the confusion of which provider is in the network. so it's obviously important for patients and families to understand their networks when they sign up for the plans. they need to know they may face higher deductibles, higher co-pays and co-insurance and possibly their provider's not covered at all. we would advocate to you today that the insurers need to be more accountable on educating their customers on their products. that includes ascension when we offer a product on the exchange. the education should focus not just on networks and who's in the networks but education on the related deductibles, co-pays, co-insurance, and even

education on trade-offs to be made when choosing a low-coverage, low-premium product versus a high-coverage, high-premium product. this is especially important with folks who do not have insurance. we've found the online directors are often incomplete. they're outdated. sometimes inaccurate information. hard copies are not existent. it's also not unusual in a community for several practices or providers to have very similar names, and that can add to confusion. finally, the access hours and the capacity for those new patients to access those providers is also important. when an individual is enrolling on healthcare.gov, they have to leave that website and go to the various insurers' websites to determine more about providers. we believe that information should be accessible through the healthcare.gov website. so i want to move on to the

quality standards. ascension health has been a leader in patient safety over the past decade. we're very proud of our quality record. our work in the last decade on pressure ulcers has resulted in our pressure decade in pressure ulcers resulting it our rate being 98% lower than national norms. ascension hospitals are among the safest to deliver a baby. we believe we should streamline the existing web of quality programs into an outcomes based uniform national core measurement set by both public and private sectors. ascension health and american's health insurance plan make this red dags last spring in a document called sustainable health care. a defined set of outcome-based measurements can provide consumers with more understandable and meaningful information to be able to compare providers within their

communities. current practice allows an insurance to develop their own quality metrics of their choosing. sometimes these measures are similar or the same as medicare but not always. a recent study released by ahib which i believe is in your packets found the primary measure used in evaluating their own network providers are quality measures. the quality goes on to describe how the quality measures cab used. there are seven different types described in the document and each has dozens or even hundreds of different measures of metrics. ki tell you in one of our health system they're evaluated by three insurance plans, same services. one grades them as a three star, another as a four star and another as a fifth star, even though it's all purportedly based on the same metrics. that causes us back and forth with the insurers to sort out is it the patient population that was looked at, is it the time period, what are the differences and what's driving them.

while we have a hard time figuring it out, it's much more difficult for physicians to understand how they've been graded as far as quality. frankly, it's a mystery for patients. so considering there should be uniform helpful, quality information as part of the patients' decision on these networks. so what is a sufficient number of providers and services to include in a narrow network? i understand the work is in progress and it will continue to evolve. i'm glad hhs and naic are working to further define the definition. i want to point out just a couple things. first of all, the individual marketplace includes many, many low income families who are also medically vulnerable. so measuring the distance to providers is sometimes not simplistically solved by measuring miles. ten miles away to a hospital may not seem very far, but if you have no trfgs and you rely solely on public transportation,

that can be 100 miles to you. and also we have folks that are buying on the exchanges that have complex child care needs. they need flexible work hours, so their information regarding providers' accessibility within hours, after hours, et cetera, is also important. we've seen a few holes in the coverage in some of the narrow networks. for example, in one market whether we are the narrow provider, we found one of the narrow networks had no access to p.e.t. scans. another glitch we found is as their narrow exclusive narrow network provider they had not contracted with any other outpatient lab services or radiation therapy. we can provide those services, are happy to provide them. frankly, getting outpatient lab testing at your hospital may not be as convenient as some of the outpatient labs that are available with better parking and better hours. so finally i'd like to emphasize

the reality of the marketplace is still that price dominates. premiums are what consumers are the most likely to look at when they choose their networks. the accountable care act established affordability standards for health premiums, but its cost sharing subsidies for those with this low income still leave large out-of-pocket medical expenses that can be unafter foffordable population. most incomes below 40% of the prove verity limit have negative net assets. even modest out-of-pocket costs create affordability problems. i'll give you one exam: this is from one of our markets that has worked with folks, married couple, both age 59 with income of $48,000 a year. they chose a bronze plan. their premium is subsidized. they pay $3,600 in annual premium. they have a $3,600 deductible and they're subject to a $12,000

potential out-of-pocket maximum. working through the numbers, if one of this couple needed a joint replacement, let's say a knee or a hip, their share of this procedure including the procedu procedures, premiums, deductibles, et cetera, would result in an annual expense of $16,000 which is now 34% of their total income. so these high deductible plans, not only are they unaffordable, but they lead to poor care. coordinating care for this population is difficult. it's well documented that when people delay seeking their care or they'll have difficulty adhering to their treatment plans when they're faced with large out-of-pocket costs. so moving forward, it's tempting to develop policies based on anecdotal information. but the reality is we need more

rigorous information. we need to know what is working, what is not working around the nation, what works in one community may not work in another community. the one priority we have for the initial attention in this area is education, providing clarity and transparency for the consumer so that they know which and who providers are in their network, how available those providers will be to them, how much cost sharing they'll be accountable for and the quality that can be provided by those providers. at the same time as this more rigorous information is developed, we believe it's more important, also, to remain flexible and respond to any particular egregious six that may come up which is what we have done in our health care system as we see these specific examples come up oops responding with compassion to understanding what the patient's needs are and meeting that as best we can. thank you. >> thanks, katherine.

let's turn to brian webb from naic. >> thank you very much. good afternoon everybody. my name is brian webb with the national association of insurance commissioners. we represent the commissioners from the 50 states, washington, d.c. which just became more important to some people in the room last year and also the five u.s. territories which is clarified last week are not states for title 1 of the affordable care act. one of our jobs is to develop model, rules, regulations that states can choose to use. we do this through an open process, bringing in stakeholders from various areas and we try to develop one. one of them we have is the network adequacy model act. number 74 if you're keeping track at home, number 74 basically was developed in 1996, and looking around the room, it looks like about half of you were in kindergarten. it was a long time ago. now we are starting to look at

it once again to see if it needs to be updated given the new environment. looking at the existing model, the basic focus was to make sure that carriers, when they set up their networks for managed care do set them up in a way that there's reasonable assurance that somebody can get to an in-network provider in sufficient numbers and types in a reasonable amount of time. we leave it up to the carriers for the most part to determine how they're going to set those up. then states can look at the networks to make sure that that definition of reasonable is reasonable, that when you look at the time it takes people to get to them, any waiting periods, any distance issues, that you make sure that everybody can get to somebody in a sufficient way. if not what the model does, if there's an insufficient nisht network, it makes sure the person can go to another

network, another doctor, another provider and wouldn't be charged more for doing to them. there's an alternative mechanism set up. what they do is they require the carriers to file an access plan with the commissioner prior to offering the new managed care plan. what goes into that is, of course, a description of the network. they need to also say how they're going to monitor that network on an ongoing base i what the grievance procedures are going to be, if someone has a problem or a question about the network. notification, how are they going to notify the consumer if there's a change in network, either the provider decides to cancel or they're terminated by the company. and also, this is very critical, the continuity of care. if someone is dropped, how are you going to make sure that person continues to get the care they need, that provider through no additional cost or through a separate provider. it also goes into the contracts. you want to make sure the

contracts being set up are not done in a discriminatory way. you're not only with certain kinds of providers so certain consumers can't get their care. you want to make sure they're not basically giving inducements to providers to make sure they're not providing certain medically necessary care or there's some kind of gag rules, they can't discuss certain types of care. all those are all rolled together into our model act. about ten states have taken and adopted our model verbatim. taken it just as it is. another ten have some kind of similar -- i just want to point out, even beyond those 20, states through guidance and through other regulatory have adopted these concepts. they work with the carriers. the carriers do use a lot of these standards in developing their networks. if you want a copy of it, you can go to the naic model, go to store and go to free. a whole section of free materials you can get including all of our models. we also have a white paper that we did on this go