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Health Care Reform 2009 Part 3: Congress (one more thing)

capitol building at night

Oh almost forgot– at every stage in the process the legislation can be “scored” by the Congressional Budget Office (CBO).  The CBO is an independent office that provides economic data to Congress.  When they score a bill or an amendment, it just means they’re estimating how much it’s going to cost.

An article over at Slate’s Explainer does an excellent job of ummm… explaining how the CBO calculated the cost of health care reform (it’s estimated at about $1 trillion).  It’s worth reading the entire article to get the details, but basically the CBO uses two methods:

  1. Compare the proposed bill with similar legislation that has already been passed.   For some bills this is easier than others.  For example, Obama has proposed repealing Bush’s tax cuts on wealthy Americans– tax changes like that are well-documented, and the CBO could calculate very accurately how much money that would raise.  But if a bill is really complicated or unprecedented, like health care reform, then it gets a lot harder to make a reliable estimate.
  2. Talking to experts. Some features of the health care bill are almost impossible to calculate- like how much money electronic health records or comparative effectiveness research might save- because they’re brand new, and because many of the details will be worked out after the bill is passed.  On these issues, the CBO talks to an independent panel of advisers and then makes its best guess.

So, how good is the CBO’s estimate?  Pretty bad.  Bruce Vladeck (the administrator of Medicare and Medicaid under Bill Clinton) calls the CBO’s track record on health care reform “abysmal“:

Over the last two decades, the CBO has routinely overestimated the costs of expanded government health care benefits and underestimated the savings from program changes designed to reduce expenditures. Most recently, it overestimated the five-year cost of the Medicare prescription drug benefit by more than 35%. Even more dramatically, the CBO’s estimates of the Medicare savings from the Balanced Budget Act of 1997 underestimated the impact, on average, by a full 100%. That’s right: In the BBA’s first three years, Medicare spending fell fully twice as fast as the CBO had projected.

Also, the CBO tends to overestimate costs and underestimate savings.  Timothy Jost, a Washington and Lee law professor outlines the reasons why in an article on Politico.  It’s a little complicated, so we’ll break it down.

Basically, figuring out the cost of health care reform is easy.  Just multiply the number of people without insurance who would qualify for subsidies by the amount of the subsidy.  Done, no sweat.  But the health reform bill in Congress contains a lot of programs that should save money too: electronic records, research into making health care more efficient, a public plan, etc.  However since many of these programs haven’t been tried by the government before, the CBO has to make its best guess to figure out how much money they’ll save.  And like any good accountant, the CBO doesn’t want to overestimate how much money the government is saving, so it guesses conservatively.

But we never hear any of that in the media- we just get the number: $1 trillion over 10 years.

And it’s not just health care that the CBO has got wrong.  In 2003, the CBO estimated that the Iraq War would cost between $85 billion and $200 billion over a ten year period.  After just over six years, the Iraq war has already cost nearly $700 billion.

All of this isn’t to say that the CBO has a partisan agenda or is somehow incompetent.  The CBO has to follow certain rules in scoring legislation, so in some ways its hands are tied.  And they have to come up with some score for every bill, regardless of how much guesswork and speculation that might take.  Vladeck perhaps puts it best, when he says,

“So, instead of treating CBO estimates like the Ten Commandments, we should treat them like the informed wild guesses they actually are.”

Hmmm… we kind of like that.  Maybe it’s time to start calling CBO scores for health care reform WIG’s- Wild Informed Guesses.

{ 2 comments… add one }
  • John Nagle September 2, 2009, 11:46 am

    VERY informative

  • Rob September 4, 2009, 1:23 pm

    Thanks John!

    One other thing I wanted to mention- we probably do want the CBO guessing conservatively on savings, given the huge national debt– as long as the public understands that it is a very conservative guess. Given how much more we spend on health care than any other country, it’s clear that there’s a lot of money to be saved… if these proposals work.

    And I have to admit, in talking about the CBO scores, it’s a little like complaining about the ref in sports. If you don’t like the call you’ll argue with it, but if it comes down on your side you’ll defend it. That said, historically on health care, the CBO has been a pretty poor ref.

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