The CBO has emerged as the be all and end all for what healthcare reform will and will not do for the nation's economy. Its word is gospel in the traditional media and on the Hill.
Here's what Ezra says about how the CBO is supposed to work:
The CBO was formed in the Budget Act of 1974. It exists for a simple reason: to help Congress build the budget. In order to do that, the CBO develops estimates of how much things cost, because that's what the people writing the budget need to know. Those estimates are, as you'd expect, biased toward costs and away from savings: What we will save if a policy works as hoped is always a lot less concrete than what we will spend.
This is a good approach for the agency charged with giving Congress budget numbers. It is not how we'd set up an agency charged with advising Congress on how to vote on policy. Which is why the CBO does not allow itself to advise Congress on whether something is a good idea. It limits itself to how much it thinks that thing will cost, and how much the CBO can confidently predict it will save.
But is that how it's working? Remember the picture in the NYT, under the title "The Negotiators: Debating health care legislation in the Senate Finance Committee"? It's actually not the Senate Finance Comittee, but Baucus's Committee, his "bipartisan" group. Sitting at the head of the table is Doug Elmendorf, and next to him, Phil Ellis, also from CBO. Are they advising, or are they negotiating? Is it appropriate for Elmendorf to be sitting in on those negotiations?
And with Republicans complaining that Obama met with Elmendorf and that he "is trying to influence the Congressional Budget Office (CBO) in order to get a favorable cost projection for his healthcare reform proposals," where are their calls for Elmendorf to stop meeting with the Baucus Gang? Could it be because they think the CBO is on their side in, as a senior GOP aide said, "knee-capp[ing] the House and HELP bills"?
With the emergence of the CBO and Elmendorf as major wet blankets on real reform, and a strong rebuttal from Obama's OMB Director Peter Orszag, there's increasing push back against Elmendorf and the CBO's pronouncements. Orszag specifically addressed CBO's analysis of "proposals to shift more decision-making out of politics and toward a body like the Independent Medicare Advisory Council (IMAC) put forward by the Administration," an anaylsis that the CBO actually found could result in some savings. But Orszag included a cautionary note:
The bottom line is that it is very rare for CBO to conclude that a specific legislative proposal would generate significant long-term savings so it is noteworthy that, with some modifications, CBO reached such a conclusion with regard to the IMAC concept.
A final note is worth underscoring. As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today’s analysis from CBO could feed that perception. For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could "eventually achieve annual savings equal to several percent of Medicare spending...[which] would amount to tens of billions of dollars per year after 2019." Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals. In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped.
Health care expert Timothy Stoltzfus Jost, a law professor at Washington and Lee University also took a look at the CBO and the reality of its forecasts at Politico's Arena:
The CBO report, reveals once again the problems that attend letting the decision of whether or not to adopt health care reform legislation to turn on CBO ten year cost estimates. First, it is much easier to score costs than cost-savings. Legislation pending in both the House and Senate in fact includes state-of-the art proposals that many health policy experts do believe will result in real savings, as the CBO recognizes It is easy, however, to figure out how many people are under a particular multiple of the poverty level and how much it will cost to cover them through Medicaid or to provide them with insurance subsidies, i.e the cost of reform. It is much harder to figure out how much public plan choice or accountable care organizatons will save the federal government. The CBO guesses conservatively with respect to savings, and the media reports this as a "blow to reform."
Second the CBO only estimates financial costs and savings to the federal government. It ignores all of the other benefits (and costs) of reform. Third, CBO estimates are not real numbers, just guesses. Remember how much angst went into getting the CBO to score the Part D drug benefit to hit Congress' own cost target, how it turned out later that the Bush administration had held back on its own cost estimates which were much higher than the CBO score, and how the real cost turned out in fact, at least initially, to be much lower than the CBO score. Congress needs to be fiscally responsible, but it also needs to address the very real needs of the American people for health care relief. And the media needs to stop reporting CBO reports as though they reflect the real costs of reform.
And analyst Maggie Mahar has a reminder about where CBO chief Elmendorf is coming from:
...Elmendorf made his way to Washington and, in 1993, landed at CBO. There, he worked on a team that examined President Bill Clinton's health reform package –and concluded that it would cost much more than originally thought. The analysis helped doom Clinton's attempt to reform health care. This, no doubt, was Elmendorf’s first taste of real power.
Elmendorf spent only a year at CBO before moving to the Federal Reserve where he worked under Fed Chairman Alan Greenspan. He then found a job in the Clinton Treasury Department, where Larry Summers ran the shop....
As an economist, Elmendorf leans to the right: debt reduction is a major theme in the academic papers that he has written. (For the record: I, too, believe that reducing debt is important. But it is not always the top priority.)
Nevertheless, Elmendorf’s initial training with a conservative economist may help explain why he takes such a gloomy view of health care reform, consistently insisting that the bills drafted by Democrats in both the House and the Senate do not offer "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."
I disagree. I have detailed some of the money-saving structural changes that the House bill proposes in an earlier post. As I explained there, the House bill would achieve significant savings by changing how health care is delivered, how Medicare pays for care, and what Medicare pays for. The public insurance option that becomes available in 2013 would incorporate what Medicare has learned about reducing costs while lifting the quality of care—and in the years ahead the public plan would continue to absorb the lessons that flow from Medicare reform. Very likely, private insurers would follow suit—especially if they are competing with a public plan.
When I read Elmendorf’s testimony suggesting that the bill wouldn’t bend the trajectory of federal health spending, I couldn’t help but wonder: Did he understand how the proposals in the 1,018 page bill dove-tailed with the excellent recommendations that the Medicare Payment Advisory Commission (MedPac) has made in recent years? Has Elmendorf read the lengthy MedPac reports?
....
Let’s be clear: Elmendorf is not a health care economist. Nor is he a health care expert. By contrast, Oszag has steeped himself in the medical research which explores what drives wasteful spending, and how collaborative, patient-centered care can address the problem. The cognoscenti of healthcare reform agree that MedPac’s reports offer a blueprint for excising the fat in our system. [emphasis in original]
The point being, the CBO's estimates are just that, estimates. The CBO can't predict the future any more than I can (though the Senate is becoming depressingly predictable in its headlong rush to do be useless). The other point being, the CBO under Elmendorf isn't necessarily a neutral player in the policy-making business. Not something you'll be likely to hear from the traditional media. Or Republicans. Or Max Baucus.