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
- The CBO prepares cost estimates for proposed legislation. These
are often made public, but the CBO also prepares confidential,
behind-the-scenes estimates for staff and Members while they are in
the process of developing legislation.
- The CBO provides estimates of policy impacts that are
budget-related. For example, when looking at recent health
insurance proposals, the CBO included estimates of how the
proposals would affect Americans' coverage.
- The CBO decides if proposed policies should be treated as part
of the government, and thus recorded on the budget for
congressional purposes. This was a big issue during the Clinton
health debate. At that time, the CBO said the federal requirements
on the private sector were so tight that much of the health care
system should be included in the federal budget.
- The CBO decides if a drafted bill would impose mandates on
state and local governments or the private sector and, if so, how
large those mandates are. Mandates are sometimes used to challenge
- Upon request, the CBO provides more information that goes
beyond the scope of basic cost estimates. This can be useful in
really understanding budget scores.
- The CBO devotes substantial resources to studies related to
health policy and the budget.
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
- Scoring focuses on revenues and mandatory spending:
Revenues are the money that the government raises through
taxes, most importantly those on payrolls, individual incomes, and
corporate profits. Mandatory spending is any spending that
occurs outside the annual appropriations process.
- Scores may also mention discretionary spending, but they
ignore interest: There are two other types of spending:
discretionary spending and interest on the national debt.
Discretionary spending is handled through the annual
appropriations process. Interest on the national debt is
technically a form of mandatory spending, but the congressional
budget process does not consider it when evaluating
- Legislation can affect revenues and mandatory spending in
various ways: When evaluating proposed legislation, budget
analysts try to track all the ways, both direct and indirect, that
it might change revenues and mandatory spending.
- Policy proposals are evaluated relative to a baseline:
To estimate the budget effects of a bill, the CBO compares it with
a baseline estimate of what would happen without the
Key Issues in Scoring Health
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
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
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
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