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Health Care Reform For Beginners: In Defense of the Congressional Budget Office

"The very fact that we’re all so worried about the CBO highlights the craziness of allowing one office to hold health care reform hostage," write the Wonk Room's Igor Volsky. "Why exactly are [reformers] jumping through hoops to satisfy the CBO?"

This is, I think, going a couple of steps too far. There's no doubt that the Congressional Budget Office is a pain in the neck for health reformers. But that's not the fault of the Congressional Budget Office. It's because the cost of health reform -- at least in the plans under consideration -- is a pain in the neck for health reformers. Attacking the CBO is like attacking the guy who writes the numbers on the price tag. But it's a good introduction to the next edition of health care reform for beginners: The Congressional Budget Office.

For a long explanation of what the CBO does, go here. The short version is this: The CBO is the agency that estimates how much pieces of legislation will cost the government. This is not an easy job. Yogi Berra got the difficulties right when he said that "it's tough to make predictions, especially about the future."

Consider, for a minute, the problems with estimating how much a health reform plan will cost over a decade. Will there be a bad flu season leading to a lot of pneumonia hospitalizations? Will Pfizer develop a very effective but very expensive drug therapy for breast cancer? Will there be a recession that forces more people to seek subsidies? Will comparative effectiveness review prove a slew of common, expensive treatments unnecessary, or will it prove a couple uncommon, expensive treatments extremely necessary?

It's hard. And it requires a lot of judgment calls made on the basis of incomplete evidence. Predicting the impact of tomorrow's policies based on yesterday's studies doesn't generate a terribly rigorous product. But it's also necessary: We need to pay for things. We need to divide yearly revenues across the budget's manifold priorities. But that requires some estimate of how much everything costs.

The CBO is responsible for producing that best guess. Sometimes, they get it wrong. Sometimes, their underlying assumptions are controversial. But in the aggregate, they do a pretty good job. Their estimates have been at the center of every legislative battle since the late-70s, and they've managed to preserve their credibility and reputation. That's no mean feat.

Volsky, I fear misdiagnoses the problem. The issue is not CBO. It's Congress. The CBO is a responsible institution operating within a culture of almost gleeful irresponsibility. Peter Orszag, who used to run the CBO, and Doug Elmendorf, who currently directs the CBO, will be the first to tell you that heath care costs are on an unsustainable path and reform is urgent. Neither of them have trouble with the proposition that reform includes both a short-term jump in costs as coverage expands and a long-term drop in costs as system reforms accumulate their savings.

Conservative members of Congress, however, will be the first to tell you that health care reform is too expensive. They will happily vote against proposals that are modeled to save trillions over the course of the next decade. They will batter the public plan senseless because it promises to negotiate lower rates of payment and harm the profits of private insurers. They will shriek in anger over the prospect that the government might fund independent studies which would, in turn, be used to assess the cost-effectiveness of treatment. They will force legislation that will be more expensive than it needs to be and then decry its high cost.

In a sensible political system, we would want a very stringent, very conservative, CBO. If health care reform saves even more money than the CBO estimates, that is all for the better. Reformers fear CBO's honest estimates, however, because they recognize that the opponents of reform will use them dishonestly. But that is not CBO's fault. Health reform isn't being held hostage by those who would estimate its cost. It's being held hostage by those who would spin those estimates to preserve the profits of the health industry.

By Ezra Klein  |  June 1, 2009; 12:00 PM ET
Categories:  Health Economics , Health Reform , Health Reform For Beginners  
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A nice start in defending the CBO, but what a load of nonsense at the end there. The real question is why is the expansion in coverage being tied to the cost reforms. The cost reforms do not require an expansion in coverage. By tying them together, it confuses the issue.

"They will batter the public plan senseless because it promises to negotiate lower rates of payment and harm the profits of private insurers."
What? That is nonsense. The problem is that many service providers can't afford to provide service without the business of privately insured patients subsidizing the Medicare/Medicaid coverage levels.

"They will shriek in anger over the prospect that the government might fund independent studies which would, in turn, be used to assess the cost-effectiveness of treatment."
Well, that does seem ridiculous. I haven't heard anyone shrieking about that, but if they are, they are doing it because they don't want to be denied treatments.

"They will force legislation that will be more expensive than it needs to be and then decry its high cost."
Baseless. It is the liberals expanding coverage that is making health care legislation more expensive. The members that are in the pocket of the ABA, the AMA, PhRMA, etc. that are protecting those interests are also to blame, Republican and Democrat slimeballs together in shame.

Step one is renegotiating the Medicare prescription drug benefit. If they aren't willing to do that outside of a bill extending coverage those we can't afford to give it to, then I question whether the Democrats really want to get that done.

We need a market that will allow for cheaper coverage- and we need to get rid of the government regulations that are preventing that from happening.

Posted by: staticvars | June 1, 2009 1:38 PM | Report abuse

Ezra, I am at a loss. What can I say to you to make you understand? Your comments on the CBO and your posting of their graph show you just don't get it.

One more time. How much medicare, health care, social security costs in the future, what percent they are of the GDP is not the right statistic to look at. The correct statistics is the


It what each person has left over (in real dollars, of course) after he pays for these. If you believe the straight line projections used by the CBO, the SSA and your friend Jon Gruber, what's left will increase for many years; We will each have more to spend. Uwe Reinhardt has done the simple computation and found that even after 40 years, we will have more to spend after paying for Medicare.

Furthermore, you say the CBO does a good job with its predictions. I'll bet you dollars to doughnuts that you have done no (zero, zilch, nada) analysis to justify this statement. For example, look at their projections of the doomdays date for Social Security, the date the Trust Fund is depleted. It's all over the lot. If it were accurate, it would stay roughly the same.

I'm not saying the CBO is dishonest. The main problem is that they make projections which you use as predictions. The projections are based on assumptions which depend on future events and so must be guessed. And at the present time nobody can guess future events.

Posted by: lensch | June 1, 2009 2:56 PM | Report abuse

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