"We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount," Douglas Elmendorf, director of the Congressional Budget Office, told the Senate Budget Committee. "On the contrary, the legislation significantly expands the federal responsibility for health-care costs," he added.
When President Barack Obama and lawmakers set out earlier this year to revamp the health-care system, they had two main objectives: Expand access to health insurance and curb runaway costs, not just for the government but the economy as a whole.
But as House and Senate versions of the legislation have advanced, lawmakers have found it easier to embrace proposals expanding coverage than those cutting the long-term cost of care. President Obama and other Democrats have made several compromises on cost savings to keep key players on board for the overall effort. For example, the White House has softened several threats to extract savings from the powerful pharmaceutical industry, despite the president's campaign pledge to take on drug makers.
Mr. Elmendorf's assessment carries significant weight in the health-care debate, since his nonpartisan organization is used to determine the official costs and impact of legislative proposals. One of his predecessors in charge of the CBO, Robert Reischauer, famously helped derail the last major push to broadly expand health care in 1994 when he testified that President Bill Clinton's proposal would cost far more than the White House had projected.
The CBO assessment quickly reverberated around Capitol Hill, where House and Senate Democratic leaders are struggling to secure votes to advance health legislation before a scheduled break in August. Some Democrats had already grown nervous about the health-care effort in recent days, after House Democrats said they would pay for their plan with a surtax on upper-income families -- a proposal that could cause trouble for some Democrats in Republican-leaning districts.
While most Democratic lawmakers embrace in principle President Obama's goal of enacting sweeping changes this year, many have said they would only support a measure that clearly can contain health-care spending. In recent days, many of those lawmakers have threatened to oppose the proposals crafted by congressional leaders, saying the plans won't do enough on that front.
Mr. Elmendorf's comments gave them new ammunition to threaten opposition.
"We have to take steps to hold health-care costs to the rate of inflation, or we will never balance our federal budget again and health-insurance costs will continue to become less and less affordable for the American people," said Arkansas Democratic Rep. Mike Ross. Mr. Ross is a leading member of the Blue Dogs, a moderate faction of the party's caucus that counts more than 50 members and has a crucial say over whether health-care legislation will pass. Mr. Elmendorf's comments, he said, "only underscore what the Blue Dogs have been saying all along."
Rep. Jim Matheson, a moderate Democrat from Utah, suggested Mr. Elmendorf's assessment "is of great concern" and called for renewed focus on restraining spending. "If we don't reform the system to get costs under control, then nothing else matters," he said. "We're just putting more people into a broken system."
The testimony undercuts one of President Obama's central arguments: that the initiative will control long-term costs for the government as well as ordinary Americans and businesses. Mr. Elmendorf did caution that making long-term assessments is difficult. "It is very hard to look out...and say very accurate things about growth rates," he said. But when asked whether bills moving through Congress would bring the health-care cost curve under control, he responded: "The cost curve is being raised."
The White House played down the significance of Mr. Elmendorf's remarks. Kenneth Baer, a spokesman for the Office of Management and Budget, said "the process is still ongoing" in terms of shaping legislation. He stressed that the Obama administration remains "confident that we will see a final bill that is both deficit-neutral and will reduce the rise in health-care cost growth in the years to come."
But it was clear that Mr. Elmendorf's remarks struck a nerve with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, who jointly appointed the economist to his post after the previous CBO director, Peter Orszag, was made White House budget director.
Ms. Pelosi, a California Democrat, complained that the CBO, in calculating the impact of health legislation, doesn't give "any credit" to certain proposals designed to reduce spending, such as preventive-care measures that backers of the bill say will reduce costs throughout the system.
In his appearance, Mr. Elmendorf suggested lawmakers could take steps to control costs. Among other things, he said Congress could reduce the tax subsidy that critics say encourages employers to offer large health-insurance policies. That idea was being considered by members of the Senate Finance Committee, but dropped after Senate Democratic leaders -- including Mr. Reid -- voiced concern. The proposal has been sharply opposed by labor unions, among other groups, that have big tax-advantaged plans.
On Thursday, Mr. Reid expressed disdain when asked by reporters about Mr. Elmendorf's suggestion. "What he should do is maybe run for Congress," the Nevada Democrat said.
Republicans were quick to trumpet the Elmendorf comments in their stepped-up campaign against the health-care effort. "The director of the Congressional Budget Office today confirmed that the Democrats' government-run plan will make health care more costly than ever, making clear that one of the Democrats' chief talking points is pure fiction," said Ohio Rep. John Boehner, the House Republican leader.
Mr. Elmendorf addressed his analysis generally to the main bills moving in the House and Senate. He suggested the analysis is evolving, noting the House bill was only released "two days ago." He made clear he wasn't referring to legislation being fashioned by the Senate Finance Committee, because leaders of that panel "have not yet released" that bill.
While the CBO storm may have set back the move for rapid action on health care, the effort also got an important boost Thursday when the American Medical Association offered support for the House proposal.
In a letter delivered to House Ways and Means Chairman Charles Rangel, a New York Democrat, the doctors' group expressed "appreciation and support" for the bill. Among other things, the AMA welcomed a provision that would put in place a new formula for payments to doctors under Medicare, avoiding deep cuts scheduled to take place next year and in future years.