THE TREATMENT NOVEMBER 24, 2009
Harold Pollack is a professor at the University of Chicago School of Social Service Administration and Special Correspondent for The Treatment.
Democratic senators and staff are still crowing about the latest Congressional Budget Office scores. According to CBO, the Senate bill costs out at $848 billion, and is estimated to reduce the federal deficit by $130 billion by 2019. Mazol Tov to Senator Reid for the good numbers. Before the high-fives get too wild, let's all take a deep breath and remind ourselves that CBO scoring is a heroic back-of-the-envelope calculation whose faux precision borders the tragicomic.
That’s nobody’s fault. CBO staff operate with integrity under great political and time pressure to score bewilderingly complex 2,000-page bills. The scoring process provides genuine accountability and judicious analysis. It places an essential roadblock that stops much stupid or venal legislation. We are just asking the impossible.
Most obvious within the comical category are the instructions CBO receives from its Republican and Democratic overseers to accept obviously false assumptions about future policies. Congress will not impose steep and sudden cuts in Medicare physician reimbursement, steep and sudden estate tax increases, or any number of other political absurdities captured in the phrase "under current law."
Then there are the heroic extrapolations required to estimate the budgetary impact of huge changes in government policy. The best welfare policy experts--and some others--made huge mistakes in guessing the likely impact of the 1996 welfare reform. Experts extrapolated from the extensive literature to predict what would happen if one abolished traditional welfare and replaced it with an avowedly transitional program. Nobody was stupid. It's not clear what else the experts could have done. You just can't reliably forecast the impact of a massive policy change by scaling up results from more modest experiments and state policy changes that have come before.
The 2009 health reform is an even more massive change, applied to a $2.4 trillion healthcare economy. Truckloads of scholarly reports and foundation white papers discuss how reform will alter medical practice and the demand for medical services. Large, perhaps inherently unpredictable changes seem inevitable. Analysts badly underestimated the budgetary impact of prospective payment and other reimbursement changes. They may do so again.
Outside the immediate medical arena, the House and Senate bills would transfer almost $200 billion down the income scale every year, through expanded Medicaid, insurance exchange subsidies, and other measures. By comparison, the Federal government spends about $50 billion every year on the Earned Income Tax Credit, and about $40 billion on Food Stamps. In sheer dollar terms, health reform will be among the largest income transfers to poor and working people in American history. It will alter incentives for full- and part-time employment, early retirement, employer hiring decisions, and more. The budgetary impact of these behavioral changes will be large.
Leaving aside broader economic concerns, CBO's challenge is magnified by the divergent views of respected economists regarding the evolution of health care spending, even in the absence of major reform. CBO director Douglas Elmendorf presents frightening viewgraphs that extrapolate current trends out to 2082. He and others are right to alert people to the scary trends. Yet there are plausible reasons to expect medical costs to display more modest growth. As I will discuss in a future post, CBO's skeptical posture regarding proposed cost control measures attracts increasingly open criticism from liberal health experts and activists.
Some of the criticism is warranted, given the lack of transparency and occasional undue presumption of CBO documents. I recently tried to understand how CBO analysts explored two provisions in the House and Senate bills. My email requesting further information yielded the polite but succinct reply: "There are no more details available at this time. Sorry."
Analysts are happy to admit that their numbers reflect political and policy uncertainty. They don't always clarify the sensitivity of their forecasts to specific modeling assumptions or how they address uncertainties in key parameters. They compound the problem by reporting a single bottom-line number. If one asked a public health expert how many lives would be saved by instituting another Chicago needle exchange or how many lung cancer cases would be prevented through a $0.75 cigarette tax increase, the likely response would be some baseline number surrounded by a confidence interval to indicate the empirically plausible range. That $848 billion point estimate would look much less impressive—indeed less important--if it were presented in the context of the considerable empirical uncertainties that lay behind it.
CBO reports also include politically potent predictions accompanied by at-times cursory explanations of their underlying reasoning. For example, CBO concludes that premiums charged for the public option would be higher than those of private plans:
The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization for its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the risk adjustment…)
Neither the public plan nor the exchanges exist yet. How do we know that the public plan would pursue less aggressive utilization review? How do we know that risk adjustment algorithms will fail to address adverse selection--so much so that the impact of this failure will exceed the impact of the administrative economies achieved in the public plan?
CBO estimates that the proposed Independent Medicare Advisory Board would reduce Medicare spending by $23 billion between 2015 and 2019.The precision of that figure seems presumptuous. In the eyes of CBO's critics, there is also an element of self-fulfilling false prophesy. CBO assigns a low budget number here because it is convinced that Congress will deny the Board leeway to make painful decisions that save money. The low number that arises from CBO's political skepticism then makes it even harder to mobilize support for legislation that would give the Board real authority to resist congressional meddling.
The opacity and shortcomings of the scoring process frustrate academics. Yet it's not obvious how transparent CBO should really be. In an ideal world, transparency would produce better political and policy debate. In the world we live in, releasing further technical details creates new opportunities for death panel demagogues to do their work. If CBO revealed every spreadsheet assumption, its reports might be picked apart by bad-faith advocates or lobbyists looking to sow confusion or to run out the political clock. CBO's small staff might get bogged down in endless technical disputes about the true costs of Montana nursing home care.
Moreover, there is something undeniably valuable about CBO providing a hard bottom-line number--even if this number is arbitrary or even wrong--to force citizens and policymakers to confront painful choices we prefer to avoid.
Maybe there is no attractive alternative this crazed health reform season to the current scoring process. When this thing is over, I hope that CBO analysts take a nice vacation to restore their energy and mental health. Then they should return to Washington to fill in the missing details for the rest of us about what is really under the hood in their scores.