CBO Comments on the Budget Impacts of the Health Bills

CBO Director Doug Elmendorf posted a particularly interesting piece on his Director’s Blog today. Summarizing a presentation he gave to the Group of 30, Doug responds to some of the more common concerns one hears about the budget effects of the health bills:

First, some analysts argue that CBO is underestimating the ultimate costs of the new subsidies to buy health insurance. My response was that the budgetary impact of broad changes in the nation’s health care and health insurance systems was very uncertain, but that CBO staff, in consultation with outside experts, has devoted a great deal of care and effort to this analysis, and the agency strives to have its estimates reflect the middle of the distribution of possible outcomes. CBO’s estimates of subsidy costs may turn out to be too low, but they could also turn out to be too high.

Second, some observers argue that CBO’s estimates are unrealistic because Congress will not allow the Medicare spending cuts in the proposals to take effect. My response was that CBO estimates the effects of proposals as written and does not forecast future legislation, but that the agency does try to provide information about the consequences of implementing proposals. Our cost estimate for the Senate proposal and our cost estimate for the House bill said that inflation-adjusted Medicare spending per beneficiary would slow sharply under those proposals. For example, growth in such spending under the Senate proposal would drop from about 4 percent per year for the past two decades to roughly 2 percent per year for the next two decades; whether such a reduction could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear. In addition, relaxing previously enacted constraints on Medicare spending can add significantly to long-run budget deficits, as we wrote in answer to a question about the effects of combining the House bill with a change in the so-called Sustainable Growth Rate mechanism for Medicare physician payments.

Third, some analysts argue that the pending proposals will hamper future efforts at deficit reduction by using spending cuts and new revenues to pay for a new entitlement rather than to cover the costs of existing entitlements. My response was, again, that CBO does not and should not forecast future legislation; its cost estimates address the specific legislation at hand and do not speculate about the possible impact of a bill on future legislative actions. However, our June analysis of health reform and the federal budget noted that using savings in certain programs to finance new programs instead of reducing the deficit would ultimately necessitate even stronger policy actions in other areas of the budget.

Fourth, some experts argue that the proposals are missing opportunities to reform health care delivery and reduce spending more significantly. My response was that it is not CBO’s role to make such judgments, but that our December volume on Budget Options included a wide range of alternatives for changing the nation’s health care and health insurance systems. Those options covered many different types of reforms and included reforms with different degrees of aggressiveness in altering existing systems and pursuing cost-saving goals.

(I don’t usually post such long excerpts, but this one struck me as worth quoting in its entirety. Doug also shared some thoughts on stimulus and the state of the economy; click on over to his post for those.)

2 thoughts on “CBO Comments on the Budget Impacts of the Health Bills”

  1. Donald,

    That extended excerpt is indeed worth posting, and should be mandatory reading for anyone opining on this issue. Hard to believe that some who I have to think know better would nevertheless argue/pretend that if CBO scores legislation as slightly deficit-reducing, (1) that scoring makes it so in reality (i.e., equates to full implementation per the law, even aside from other potential sources of error, some related to restrictions on CBO’s methodology, such as static analysis), and (2) that means the legislation contributes to the solution of our long-term fiscal imbalance rather than making it tougher and eventually more painful to solve.

    See this example of someone (an experienced “Washington insider” no less) not only offering up absurdity #1 above, but actually ridiculing someone else (David Broder) who had spoken in realistic terms http://capitalgainsandgames.com/blog/stan-collender/1266/what-david-broder-thinking . See also my response on that threat at http://capitalgainsandgames.com/blog/stan-collender/1266/what-david-broder-thinking#comments

  2. I understand the limitations of the CBO analysis, but it is still a “system” that is being gamed by Congress. The doc fix is taken out and passed seperately. Medicare cuts are factored in, even though the Doc Fix suggests otherwise. For all I know, the Congress could plan on selling the Washington Monument for $500b and the CBO would incorporated that into their analysis. At the end of the day, the CBO has done it’s job, but the taxpayer is still being ripped off, and in the process, the health care system is being put at risk. And all of this is ok because ……..?

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