June 9 (Bloomberg) -- A health-care overhaul won’t swell the U.S. government’s deficit over 10 years, President Barack Obama’s budget chief said, as lawmakers began assembling proposals that incorporate recommendations from the White House.

Peter Orszag, the budget chief, said the U.S. has a moral obligation to expand coverage to the 46 million Americans without health insurance. To afford that, he said, the administration will find savings in the Medicare and Medicaid programs for the elderly and poor. Orszag also defended plans to save money by comparing drugs and devices for effectiveness.

Obama plans to outline in the next 10 days how he’ll pay to remake the health system, estimated to cost more than $1 trillion, U.S. officials said earlier. Today, Obama urged Congress to reinstitute rules requiring the cost of any new programs or tax cuts be offset by raising taxes or trimming spending. Orszag, head of the Office of Management and Budget, said health-care savings will be real.

“This is not make-believe,” Orszag said today at the Brookings Institution, a policy research foundation in Washington. “These are not untested proposals. These are proposals that have been scored by an appropriately skeptical Budget Office. The package we put together will be deficit neutral over 10 years. There is no ambiguity about that.”

Senate committees meet this week behind closed doors to finish drafting a bill that Obama said last month he wants to see by August. Those will include proposals to advance what is known as “comparative effectiveness” research, which is side- by-side study of medicines, devices and treatments.

Costs, Restrictions

An industry-backed group known as the Partnership to Improve Patient Care argues on its Web site that side-by-side studies shouldn’t be used to restrict treatments that doctors are convinced would work on an individual patient. A comparative effectiveness measure in the economic stimulus bill that Obama signed Feb. 17 omitted language that would have included cost as a consideration in evaluating treatments.

“This is not about getting in the way of you and your doctor,” Orszag said. “It strikes me that this is not about a government-run on-off switch. It’s about making sure that you and your doctor have enough information about what’s right for you.”

Extending health insurance to those who now lack coverage will probably cost more than $1.5 trillion, according to an estimate from Gail R. Wilensky, an economist and former administrator for Medicare, in a May 15 telephone interview. She cited estimates last year by then-presidential candidate Hillary Clinton and economists who’ve looked at Obama’s plans this year.

Swelling Deficit

Obama’s budget request for 2010 sets aside $635 billion over 10 years to pay for a health-care overhaul. The administration last month said the U.S. budget deficit would swell to a record $1.84 trillion this year.

In a June 2 letter to the Senate leaders overseeing health legislation, Obama said costs must be reduced, especially if Congress mandates insurance coverage for all Americans. The overhaul “must not add to our deficits,” he said.

In that letter, the president called for $200 billion to $300 billion in savings from the Medicare and Medicaid programs in addition to $309 billion proposed in the budget over 10 years.

“These savings will come not only by adopting new technologies and addressing the vastly different costs of care, but from going after the key drivers of skyrocketing health-care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions,” Obama wrote.

‘Inefficiencies in System’

The previous savings outlined in the budget included reducing payments to insurance companies offering subsidized Medicare Advantage plans, while cutting waste and fraud and improving the quality of care.

The administration’s larger goal is to change the way U.S. health-care is delivered, Orszag said today at the Brookings event, which was called to discuss comparative effectiveness.

“If that’s all we did, expand coverage and pay for it, we would be perpetuating a system in which we spend twice as much in some areas as others and don’t seem to get anything in return for it,” Orszag said. “We also need to address the inefficiencies in the system.”

Assurances From Baucus

Senator Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee that is writing health legislation, said he has assured his Republican colleagues that comparative effectiveness research won’t be used to ration care.

Baucus, appearing at the Brookings event, said he intends to include his own comparative effectiveness plan in the overhaul legislation and doesn’t expect opposition.

“We’ll be able to get this included in health reform as long as we make clear there’s no cost-benefit analysis,” Baucus said. Patients and their doctors will make decisions based on costs, Baucus said.

“That’s up to them to look at cost, but it’s not up to the agent to look at what should be prescribed or not,” he said.

Orszag said any comparative effectiveness research would have to look beyond national averages, because of regional differences, and at areas of medicine where there’s little certainty what works.

In cardiology, “only half of practices are backed by evidence that what’s being done works better than the alternative,” he said.

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net.

Last Updated: June 9, 2009 14:38 EDT