July 15, 2009 | Executive Summary on Health Care
With so much happening in the health care reform arena, everyone is paying close attention to the budget analyses of the Congressional Budget Office (CBO). The CBO often uses sophisticated economic modeling and usually frames information in ways that match the specific requirements of the congressional budget process. This can make it a challenge at times to understand what the scores mean and don't mean.
What the CBO Does
The CBO is a key part of the budget process. The CBO provides six basic services in the ongoing health reform debate.
What the CBO Doesn't Do
The CBO does not make policy recommendations. It is not the job of the CBO to encourage or discourage particular policy actions. The agency's role is limited to ensuring that Congress has the best possible budget information.
The Basics of Budget Scoring
Key Issues in Scoring Health Proposals
Behavioral responses are important. When the CBO makes projections, it tries to predict how everyone (consumers, workers, providers, employers, state governments, insurers, etc.) would respond to a new policy change.
Changing health habits and medical practices doesn't necessarily reduce costs. In recent years, lawmakers have often considered policies that would change health habits or the practice of medicine. These proposals come in many flavors but share common goals of improving care and reducing costs. However, these policies may not reduce federal spending as much as proponents expect, if at all.
Policy impacts depend on payment rules. Health spending is often controlled by formulas that determine health care provider payments and beneficiary premiums. These formulas can offset or eliminate any federal savings that might result from changes in medical practices.
Budget scoring rules prohibit certain health care changes from being scored. The CBO must follow certain rules in evaluating health reform proposals. Among these, the CBO cannot give credit for certain types of proposed savings.
Scores usually look at only the first 10 years. But spending on health programs often accelerates over time, meaning the second 10-year period and subsequent periods can be far higher.
Commentators often summarize the CBO's cost estimates in terms of the net budget impact over 10 years. That shorthand is useful and important, but a single figure can conceal more than it reveals. To truly understand scores, it is often necessary to look at the scores for individual programs and individual years.
Donald B. Marron served as deputy director of the Congressional Budget Office from October 2005 to August 2007, including more than a year as acting director, and later served as a member of the Council of Economic Advisers. He now consults on economic, financial, and budget matters and writes the blog dmarron.com.