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The Congressional Budget Office vs. The White House

PH2009072103258.jpgI'm not sure what it says about me that I'll interrupt my weekend for a new Congressional Budget Office report, but whatever it is, consider it said.

The CBO has brought out a new report estimating the impact of the administration's proposed Independent Medicare Advisory Council, which would give an independent body of experts authority over Medicare reforms, and charge them with cutting costs and discovering efficiencies. This is something of an important release. The administration has sold the IMAC as a "gamechanger" on cost control. The CBO doesn't agree. It think that body will save some money, but not much. And for the first time, we're seeing a serious rift open up between the administration and the Congressional Budget Office.

The CBO's analysis suggests that the short-term effects of IMAC will be modest. That's to be expected -- it doesn't go into effect until 2015. Over time, the effects could compound, and a strong IMAC proposal could save a lot of money -- "equal to several percent of Medicare spending." Or maybe not. The CBO, at various points in its analysis, says that it's hard to know.

It's easy to understand why: The potential savings from IMAC aren't something you can plug into a formula. After all, the point of IMAC is not that it would implement the best ideas we have in 2009, but that it will give a body of experts the ability to implement the best ideas they have in 2022, and 2034, and 2019, and every other year. CBO can't guess at what those ideas will be any more than I can. We don't have the data they'll be using, we don't know the technology they'll be able to employ, and it's impossible to estimate the political climate. May as well ask what the top-rated NBC show will be in 2029.

Which makes it a bit strange that the CBO attached any numbers to its long-term predictions at all. The agency is usually quite conservative in its estimates: When faced with an unknown, it generally admits that it doesn't know. In this case, it confronted the unknown and came back with a pretty specific set of predictions, albeit predictions qualified by a lot of caveats. Peter Orszag, the former director of the Congressional Budget Office and the current director of the Office of Management and Budget, seems pretty shocked:

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.

That paragraph reads a bit like a very angry Data trying to hurt Spock's feelings. But translated out of Budget Wonk-ese, it's about the gravest charge one CBO director can lob at another: It's an accusation that the CBO has released an estimate that's driven by the desires of Congress (in this case, the desire to have seemingly concrete numbers) rather than actual facts. And as someone who is on record defending CBO against those who want more favorable estimates for health-care reform, I think Orszag has this one right: It's just impossible to say what the experts will want to do with Medicare in 2027, and it's similarly hard to know what the president, and Congress will allow them to do.

That said, it's worth putting this in some context. In 1994, Alice Rivlin was in Peter Orszag's position: a former CBO director who had left to head the OMB. Robert Reischauer had taken control of the CBO, and he decided that premiums paid to private insurers under the Clinton health-care plan should be considered payments to the government, and thus would have to be accounted for on the budget. This made the price tag of ClintonCare obscenely high and infuriated the administration, Rivlin included.

I think Rivlin was right on that one, as I think Orszag is right on this one. But it serves as a reminder that clashes between past and current directors are not uncommon, and that disagreement was far larger and more consequential than this dispute.

Photo credit: AP Photo/Alex Brandon.

By Ezra Klein  |  July 25, 2009; 5:45 PM ET
Categories:  Health Reform  
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Next: The Ghosts of ClintonCare


It seems to me that the current CBO director has decided the employer tax exclusion must me lifted. He has made several strong statements in support of that policy while downplaying everything else, despite how clear it is to everyone that he can't possibly speak with such certainty. While he's probably correct, it's a bit beyond his pay grade.

Posted by: CarlosXL | July 25, 2009 6:57 PM | Report abuse

Pelosi hired Elmendorf. If people don't like what is coming out of the CBO, they should contact her.

Posted by: SpanishInquisition | July 25, 2009 7:16 PM | Report abuse

Pelosi promoted Elmendorf. Not quite the same thing.

In any event Elmendorf's testimony to Congress Thursday the 16th was so unhelpful as to amount to sabotage of Democrats efforts. CBO was on the verge of releasing a report on the Tri-Committee Bill that would show a 10 year deficit neutral score, or by another measure scoring $809 billion less than the partial score from Tuesday, but focused his whole testimony about it didn't by itself change long-ter
cost bend points, something which given CBO scoring methods it could not have been expected to do. That combined with a late Friday afternoon release of the new CBO score of HR3200, itself not announced on the Director's Blog until Sat morning. By which point the message 'House Bill adds trillion dollars to debt' swamped 'House produces paid for bill'. And that Fri 17 score never caught up, it got ground up in the news cycle.

As far as I am concerned Doug is on probation, is he too defining 'bi-partisan' as 'Blue Dog'?

Posted by: BruceWebb | July 25, 2009 7:39 PM | Report abuse

I understand the call given CBO mandate. However, considering how fractious the reform enterprise really is, can one expect to ever score any potential savings measure, even a potent one with real legs, with any heft if all benefits will accrue downstream?

Even a malcontent like myself, who is cynical in terms of Mcare cost bending, felt this type of panel was the only way to do the deal, ie, move it out of Congress. Period. And yet, if one of the more optimal approaches out there, aside from outright budget slashing, is given short shrift, one cant be sanguine about change.

Reboot CBO, administration, Congress, or all of the above. This is maddening.

Posted by: BradF1 | July 25, 2009 8:30 PM | Report abuse

Oymigod, you showed up on a Saturday. Now you're going to hell.

Posted by: NealB1 | July 25, 2009 9:45 PM | Report abuse

In the swirl of all the many rescues and reforms being bandied about right now by the federal government, I confess to having the very sketchiest notion of this one.

But is it true that we are discussing a reform that will not go into effect for six years? Not following the timeline of gamechanger of a plan that doesn't change anything for the next six years....

Posted by: anne3 | July 25, 2009 10:04 PM | Report abuse

I would like to have Ezra work non-stop, 24x7 providing quality posts of a wonkish nature.

There is nothing worse than having to go through a full weekend refreshing the page and seeing the same post there.

Please, Ezra, consider the readers before you leave for any time off.

Posted by: chad6 | July 26, 2009 12:10 AM | Report abuse

Lets face it. Conrad and Elmendorf conspired last week to try and torpedo health care reform. Lets not also forget that Elmendorf is chummy with Peter Peterson. One of those hypocrite fiscal scold types who only worries about spending when Democrats do it.

Posted by: Calvin_Jones_and_the_13th_Apostle | July 26, 2009 3:14 AM | Report abuse

The impact of the IMAC is, as you point out, almost impossible to determine. Nobody knows what specific technological and cost changes will occur in the future, or politically whether Congress will resist the temptation to override the IMAC or even disband it.

Given this, how can you complain that the CBO didn't project substantial savings? The CBO's job is not to give a best case estimate for the White House which appears to be what you want it to do.

I wonder how long the CBO will be able to provide a reasonably objective analysis given the 'damn the facts, the ends justify the means' approach to ObamaCare that seems to pervade those in power today. Reading between the lines in the post and several of the comments does little to reassure me that this vital part of Congress will not be deliberately bent into another mouthpiece for Pelosi.

Posted by: DaMav | July 26, 2009 3:15 AM | Report abuse

DeMav makes this point, as does Ezra, but the crucial thing here is that the CBO is not equipped to estimate the financial impact of IMAC.

Everyone knows there are hundreds of billions of dollars wasted on health care that is ineffective, harmful, or at least no more effective than much cheaper care. IMAC is being charged with finding instances of this type of care and changing the reimbursement system to eliminate the waste.

However, there is no concrete data available to allow projection of how much they will actually save, since that will not be available until after this now-theoretical agency is created, staffed, and begins to work.

The CBO uses concrete data in making its projections. They have no choice but to say that IMAC is not associated with any provable savings.

The situation resembles the world of electronics at the time of the changeover between the vacuum tube and solid state electronics. Informed observers could say that there were all sorts of possible amazing results on the horizon, but no one could precisely predict that we would all have computers smaller than our phone books, music systems that replaced large stereo players with devices as small as a cigarette lighter, and communication systems that allowed us to access both our friends and a world wide data system with devices that fit in our pockets. That was the realm of vision, not analysis.

That conflict between the world of analysis and the world of vision is the problem here. IMAC, applied correctly, could save hundreds of billions a year, but those are theoretical, not actual measureable, savings.

Posted by: PatS2 | July 26, 2009 10:54 AM | Report abuse

The problem is not the CBO. The problem is congress. They didn't give a damn how much the Iraq war would cost. They supported Bush's $1.7 Trillion tax cuts but they refuse spend one dime more than $1 Trillion on health care reform. Whats worse they only care about costs in the ten year window. It is not the CBO's fault that if their estimates are too high congress will phase in the program more slowly. Thats congresses fault for caring about appearances more than policy and the powerful more than the weak.

Posted by: CraigMcGillivary1 | July 26, 2009 11:16 AM | Report abuse

I think there is a statement in Peter Orszag's letter that must be shouted to the heavens and repeated over and over lest an alternate reality take hold. The statement is that the IMAC was NEVER meant to produce a lot of savings. Politico yesterday and Jake Tapper this morning are both making it seems as if the CBO analysis is a major hit against IMAC because it doesn't show huge savings over the next decade. But if was never meant to show those savings then its not really a big deal is it? Yet you can count on the GOP framing this as "proof" that the Democratic proposals will not save money or bend the cost curve. And Orszag's statement runs the risk of being totally being ignored by the populous.

Posted by: sgwhiteinfla | July 26, 2009 11:31 AM | Report abuse

"The administration has sold the IMAC as a "gamechanger" on cost control. The CBO doesn't agree."

Of course, if the administration can't properly assess what the cost control problem actually is, then we should not be surprised to see it identifying, as "gamechangers" ideas that are not.

Posted by: whoisjohngaltcom | July 26, 2009 12:25 PM | Report abuse

I call bullsh*t on this, and I say that strongly with reason, because this doesn't look like an intellectually honest criticism of Orszag's but rather an attempt at a political assasination of one of the few folks in town not drinking the cost-saving Koolaid.

Orszag's own post doesn't make sense. He laments that "CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings" and that this analysis may "feed that perception." So what specifically does he criticize them of? OVERESTIMATING savings!! How does that feed a perception that the CBO tends to underestimate savings?!

This is true bait-and-switch. In order to weaken the CBO's claims on lack of cost-savings across the board, he can only find an example where the CBO, in trying to provide some support for an idea that is the ADMINISTRATION'S idea, took a few methodological leaps in error. An error that really isn't at all related to the general concerns he and others have stated on CBO (too conservative). Orzsag's too bright to have made this mistake unintentionally, which only leaves a conclusion that he's intentionally trying to sully the reputation of the CBO out of frustration or political calculation.

This comes a few days after a pretty inappropriate summons of Ehlemendorf to Obama's office. We're supposed to be surprised that Ehlmendorf threw the Administration a bone with a generous long-term assessment a few days after meeting with a popular president of the same party as the Speaker? And Orszag has the audacity for calling out CBO in trying to be a little supportive of the Administration?


PS This is not even mentioning that this "long-term analysis" would be more accurately captured as a supplemental thought at the end of a 7 page letter, as part of a final section on CBO's thoughts on how best to structure a strong IMAC. Its more wonkish fine-print than central to the analysis. Its provides further evidence that this was Orszag, looking for any crack in the CBO armor in order to weaken it, regardless of whether it was consistent with general concerns of CBO analyses or the level of importance of the point. Its like a lawyer tripping up an expert witness on a small point that's only tangential to the case.

Posted by: wisewon | July 26, 2009 3:58 PM | Report abuse

Economic populism doesn't usually get along very well with reality.

Don't you think it's ironic to question the credibility of a Government appointed expert while lobbying for greater empowerment of more Government appointed experts? Perhaps it is Government expertise in general that you should be questioning.

Posted by: fallsmeadjc | July 26, 2009 7:48 PM | Report abuse

Matthew Yeglesias has a good post about this and my additional comments are .

So far it has been Congress and Administration which have been making a mess of the situation. Now CBO has joined.

As like everyone else, I regarded CBO as the blemish free entity in this debate helping to referee and stir it in right direction. With their Saturday bomb, it is clear that CBO is not above the fry and is indeed committing needless, avoidable mistakes here. Unfortunately, it can very well cost this whole Obamacare.

The questions is why Washington is failing in getting this basic process correct - to have norms and criteria of CBO well published by which Congress bills are evaluated and Congress starts with bills which are not outlandish. This incident is a clear example where CBO guidelines can be a 'moving poll post' and hence the whole righteous commentary and criticism of Congressional bills with reference to CBO are suddenly becoming mute. What a shame and how 'mighty' have fallen.

Public have had two entities to clip 'tax and spend' Dems in their spending bills - GOP and CBO. With GOP, political motives are way too influential which are clearly coming at the cost of what is good for America. That is what 'Obama's Waterloo' comments show and Ezra's assertion in his op-ed show (that GOP wants to repeat the Hillarycare defeat play book). And now with CBO we have the only other entity lost too.

President Obama - he has not proven any of his credentials on fiscal discipline. He has an opportunity to raise above the fry (which he looks for always and can yield something useful for Americans in the end) in this matter and shepherd this debate. Primarily that will involve concentrating on Dems and getting all of them on the board. This is because, with these incidents and month long exposure in August have practically ensured that whatever Health Reform to come out, it will be totally partisan and by Dem votes only. Whatever left bi-partisan support (Grasseley, Snowe, etc) may not be there any more.

The whole thing is sad - every bit of the player is showing its 'feet of clay'.

Posted by: umesh409 | July 26, 2009 10:26 PM | Report abuse

Here is a projection. "If all 5 starters of the Nats rotation each win
20 games, the Nats will win their division." That's a pretty good
projection. But today, we get people (including you Ezra) who quote
projections without giving the assumptions. So we get that statement
"The Nats will win their division" which ain't so hot as a prediction.
This happens over and over in giving data, presenting graphs and
making arguments (Medicare will be 9% of our budget by 2050).

Frequently the assumptions are ludicrous (Health care will increase at
the same rate for the next 73 years as it has in the last 5, 10, or 20
years (pick one; they all give different results.)). Often they are
simply unknowable because they depend strongly on future events (The
average GDP growth for the next 75 years will be 1.78% - SSA).

These projections have been largely wrong in the past, sometimes famously
wrong (There will be surpluses for the next 10 years - CBO 1998).
Those that are given each year are not even consistent (The dates the
SSA projects for the depletion of the Trust Fund have been all over
the map in the last 20 years.).

Yet youse guys continue to treat them as gospel. Why?

I still believe one would do as well with a shaman, a goat and a sharp

Posted by: lensch | July 26, 2009 10:28 PM | Report abuse

Budgeting is about math. It is not about ideology, or about politics, but simple math. The director of the CBO, or the OMB, should follow the math to where it leads them. I am so sorry to all of you left-wingers who think that numbers do not matter, but in some ways, numbers are ALL that matter. The president pitched this reform as primarily a way to get control of our long term deficit problem, and he is right to do so. But if that was the sales pitch to the American people, then the math better work out or else the health care reform plan should be shelved.

Posted by: lancediverson | July 26, 2009 10:37 PM | Report abuse

Obama has got to stop pretending that healthcare reform is a solution to the defiicit or a cure for the economy. He's got to just be honest and admit that it's an entitlement expansion to cover the uninsured. Otherwise, he's just playing politics and this isn't a game.

Posted by: fallsmeadjc | July 26, 2009 11:18 PM | Report abuse

lancediverson - I am a mathematician and your faith in the math is touching, but misplaced. The CBO makes projections, not predictions. Read my comment above. These projections are based on assumptions which cannot be computed, but only guessed. Once you make the assumptions, then it is math, but the assumptions are not.

Posted by: lensch | July 27, 2009 8:09 AM | Report abuse

This will be pretty easy for you.

When was the last time the CBO overestimated the cost of a government program or underestimated how much revenue would come in from a tax increase. Here's a hint... not for a long while so that means two things.

1) Healthcare costs are going to much higher than what the President is saying, and

2) The taxes that will needed to be raised to pay for this boondoggle won't come close to the projections put forth.

Until, the President puts for his honest reasons for the reformation of healthcare - single payer - this won't go very far. If that is what he wants and that is entirely fine but lets have a real discussion on true intentions and lets not dance around the issue.

BTW, your grammar is terrible - have someone proofread your posts before you post.

Posted by: SteelHop | July 27, 2009 10:41 AM | Report abuse

Note Ezra's careful misdirection in this post: He neglects to mention that if it's truly impossible to estimate the cost savings, then the Administration's characterization of this proposal as a "gamechanger" on cost control is similarly insupportable.

Ezra's basically saying, "believe my nonsense, not other people's nonsense."

Posted by: tomtildrum | July 27, 2009 10:50 AM | Report abuse

Remember when the CBO blasted Obama admin for overspending on healthcare?

After the secret visit of the CBO guy to Obama office last week, now there is a “new” CBO report that says that Obama's healthcare plan “could coexist with private insurers ” without driving them out of business...


How can one week the CBO say the healthcare will bust the bank and then the next week state that it will do well with other insurers?? Obviously these two ideas are on different plains but ultimately...if you bust the bank then you will also HURT other companies vying for strong footing from the encroaching government intervention!!!!

Anyone freaking listening out there??!!?!?!

Posted by: juanramos777 | July 28, 2009 9:08 AM | Report abuse

IMAC will lower costs…trust me.

Quibbling about the validity of obviously unknowable data does not add luster to anybody’s political ethos.

Arguing numbers is a distraction because the ideological discussion - whether or not Government Oversight Boards increase customer satisfaction - is the closest possibility to a constructive discussion of an objective issue about said IMAC.

Posted by: hoplite2010 | July 28, 2009 12:02 PM | Report abuse

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