Tuesday, July 28, 2009

Politicized Prognostication at CBO

Frank Pasquale

Back in 2007, wise wonks were already warning that the Congressional Budget Office could torpedo health reform. The CBO dealt Clintoncare a heavy blow by saddling it with huge cost projections -- and failing to take into account the savings the program would realize for individual citizens and the private sector. Current CBO director Doug Elmendorf has been riding a wave of notoriety as an objective "referee" in an increasingly bitter reform battle. But as his office's one-sided estimates enervate reform, it's beginning to risk its reputation for impartiality. Consider the following observations about CBO's work:

Bruce Vladeck: "The CBO’s track record in predicting the effects of health legislation is abysmal. Over the last two decades, the CBO has routinely overestimated the costs of expanded government health care benefits and underestimated the savings from program changes designed to reduce expenditures. Most recently, it overestimated the five-year cost of Medicare Part D — the prescription drug benefit — by more than 35%. Even more dramatically, the CBO’s estimates of the Medicare savings from the Balanced Budget Act of 1997 underestimated the impact, on average, by a full 100%. That’s right: In the BBA’s first three years, Medicare spending fell fully twice as fast as the CBO had projected."

Timothy Stoltzfus Jost: "[A] moment's reflection would lead one to realize that the CBO's guess that [a reform proposal] would save [only] $2 billion is about as worthless as an estimate that a loaf of bread will cost $5.65 in 2019, or a gallon of gasoline $4.73. Indeed, the CBO admits as much, stating that it actually believed the proposal would save nothing, but "there is also a chance that substantial savings might be realized." . . .[T]he media needs to stop reporting CBO reports as though they reflect the real costs of reform."

Maggie Mahar: "When I read Elmendorf’s testimony suggesting that the [House] 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?"

When respected experts like Maggie Mahar are wondering if Elmendorf has understood key literature in the area, something's gone wrong at CBO. The media's uncritical acceptance of his figures can only last as long as it fails to report the true complexity and uncertainty involved in both substantive reform and the do-nothing option that CBO's handiwork is unintentionally advancing.

Of course, anyone familiar with Timothy Westmoreland's work on CBO budget scoring would have been suspicious of its prognostications from the outset. As he noted in 2008:

The budget process systemically favors policies that let sick people die rather than incur future government-financed health costs [arising out of survivors' increased life expectancy]. Second, the process also structurally favors policies that keep expenses off the federal books by working through mandates rather than spending. Both of these problems should be addressed before the Congress considers universal coverage legislation.

The latter bias, toward mandates, systematically "fails to recognize financial benefits to non-government actors" that are realized via alternative routes to universal coverage. Even if a public health option saved citizens tens or hundreds of billions of dollars by competing with private insurers and driving down premiums, CBO couldn't factor such a boon to our economy into its solipsistic calculations. (And don't even think of asking it to quantitatively value the peace of mind and labor mobility such an option would generate.)

Despite all these shortcomings of the CBO numbers (and many forms of cost-benefit analysis generally), cost estimates will loom ever-larger in health care debates. As T.M. Porter's book "Trust in Numbers" observes,

[Q]uantification grows from attempts to develop a strategy of impersonality in response to pressures from outside. Objectivity derives its impetus from cultural contexts, quantification becoming most important where elites are weak, where private negotiation is suspect, and where trust is in short supply.

Neverthless, Vladeck is right to argue that "instead of treating CBO estimates like the Ten Commandments, we should treat them like the informed wild guesses they actually are." If CBO fails to advance such disclaimers itself, it risks ending up as discredited as the bailout wizards of Wall Street. CBO's clinically depressive pessimism about health reform costs looks about as trustworthy as the manic assumptions of ever-rising home prices that fueled the banks' bogus boom.

There are also legitimate worries about Elmendorf's own possible political biases. Martin Feldstein, the director of the Council of Economic Advisers (CEA) under President Ronald Reagan, mentored him. Guess who came out today with a remarkably disingenuous opinion piece that simultaneously laments rising health costs and runs down the cost effectiveness research and government bargaining power necessary to rein them in? Even more astonishingly, Feldstein states that "there is already a very competitive private insurance market" -- despite David Balto's well-corroborated testimony that "few markets are as concentrated, opaque and complex" as private health insurance. If Elmendorf is still consulting with Feldstein on health matters, we have a lot to worry about -- especially if he's serious about cutting survivors' costs.

X-Posted: Concurring Opinions.

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