By Lori Montgomery
Washington Post Staff Writer
Thursday, July 16, 2009 3:55 PM

Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would increase rather than reduce public spending on health care, potentially worsening an already bleak budget outlook, the director of the nonpartisan Congressional Budget Office said this morning.

Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate health committee do not propose "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

"On the contrary," Elmendorf said, "the legislation significantly expands the federal responsibility for health-care costs."

Though President Obama and Democratic leaders have said repeatedly that reining in the skyrocketing growth in spending on government health programs such as Medicaid and Medicare is their top priority, the reform measures put forth so far would not fulfill their pledge to "bend the cost curve" downward, Elmendorf said. Instead, he said, "The curve is being raised."

The CBO is the official arbiter of the costs of legislation, and Elmendorf's stark testimony is certain to undermine support for the measures even as three House panels begin debate and aim to put a bill on the House floor before the August recess. Fiscal conservatives in the House, known as the Blue Dogs, were already threatening to block passage of legislation in the Energy and Commerce Committee, primarily due to concerns about the long-term costs of the House bill.

In her weekly news conference, House Speaker Nancy Pelosi (D-Calif.) expressed concern that the CBO is not giving lawmakers enough credit for measures that would bring down costs by increasing preventive care. If the health reform measure produces more savings than expected, she said, a proposed surtax of up to 5.4 percent on the wealthy could be lowered or the revenues could be devoted to bringing down the deficit.

Meanwhile, Rep. Mike Ross (D-Ark.), a fiscal conservative who is leading a group of Democrats who will be pushing for more cost savings in the Energy and Commerce Committee, said Elmendorf's comments would galvanize that effort.

There are "a lot" of Democrats who want to see more savings, Ross said. "There's no way they can pass this bill on the House floor. Not even close."

Cost is also a major issue in the Senate, where some moderate Democrats have joined Republicans in calling on Obama to drop his demand that both chambers approve a bill before the August recess. While the Senate health committee approved its bill on Wednesday with no Republican votes, members of the Senate Finance Committee were still struggling to craft a bipartisan measure that does more to restrain costs.

The chairman of the Senate Budget Committee, Kent Conrad (D-N.D.), has taken a leading role in that effort. This morning, after receiving Elmendorf's testimony on the nation's long-term budget outlook, Conrad turned immediately to questions about the emerging health-care measures.

"I'm going to really put you on the spot," Conrad told Elmendorf. "From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?"

Elmendorf responded: "No, Mr. Chairman."

Asked what provisions would be needed to slow the growth in federal health spending, Elmendorf urged lawmakers to end or limit the tax-free treatment of employer-provided health benefits, calling it a federal "subsidy" that encourages spending on ever more expensive health packages. Key senators, including Conrad, have been pressing to tax employer-provided benefits, but Senate leaders last week objected, saying the idea does not have enough support among Senate Democrats to win passage.

Elmendorf also suggested changing the way Medicare reimburses providers to create incentives for reducing costs.

"Certain reforms of that sort are included in some of the packages," Elmendorf said. "But the changes that we have looked at so far do not represent the sort of fundamental change, the order of magnitude that would be necessary to offset the direct increase in federal health costs that would result from the insurance coverage proposals."

Senate Majority Leader Harry M. Reid (Nev.) dismissed Elmendorf's push for the benefits tax. "What he should do is maybe run for Congress," Reid said.

But Senate Finance Chairman Max Baucus (D-Mont.) expressed frustration that the tax on employer-funded benefits had fallen out of favor, in part because the White House opposes the idea. Critics of the proposal say it would target police and firefighters who receive generous benefits packages. And if the tax is trimmed to apply only to upper-income beneficiaries, it would lose its effectiveness as a cost-containment measure.

"Basically the president is not helping," Baucus said. "He does not want the exclusion, and that's making it difficult."

But he added, "We are clearly going to find ways to bend the cost curve in the right direction, including provisions that will actually lower the rate of increase in health care costs."

Ideas under consideration include health-care delivery system reform; health insurance market reform; and empowering an independent agency to set Medicare reimbursement rates, an idea the White House is shopping aggressively on Capitol Hill.

But Baucus is not giving up on the benefits tax. "It is not off the table, there's still a lot of interest in it," Baucus said.