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Friday, January 07, 2011

It's time to fix the CBO rules

Since the CBO is forced to analyze only the components of a new law that they are told to analyze and to assume whatever rosy assumptions that are built in the bill, the Republicans now have to argue that the CBO scoring of Obamacare is faulty and leaves out some of the real costs, such as the the doc fix, and counts some of the revenue twice. They're right, of course, but it is a difficult debate for many people to follow. Even Douglas Elmendorf, the present head of the CBO notes these problems. Kevin Williamson explains what is really going on.
First, it is worth asking how complete and how accurate the CBO’s estimates are. You know who has some useful insights into that question? The CBO. For instance, CBO director Douglas Elmendorf readily concedes that “estimates of the effects of comprehensive reforms are clearly very uncertain, and the actual outcomes will surely differ from our estimates in one direction or another.” One direction or another. (Guess!) It will not come as a shock to observers of federal activities ranging from the ethanol program to the Iraq war that — unthinkable as it may seem — a government program may under some circumstances exceed its budget. If Obamacare spends not a nickel more than the CBO estimates, and if Obamacare produces every dime of the revenue promised, then it will prove a deficit-reduction tool over the next decade, by definition: That’s $411 billion in spending and $525 billion in revenue. I wonder if Ezra Klein would like to place a very large bet with his own money on the possibility of that happening. I would. In fact, I am willing to bet not only that there will be significant variation, I am willing to bet on the direction of that variation, at least insofar as the spending goes. (I would not be surprised if revenue projections fell short, too: Those tax increases are going to be even less popular when people start paying them.)

You know who seems sympathetic to my position? Douglas Elmendorf of the CBO, who writes: “CBO’s cost estimate noted that the legislation maintains and puts into effect a number of policies that might be difficult to sustain over a long period of time. For example, the legislation reduces the growth rate of Medicare spending (per beneficiary, adjusting for overall inflation) from about 4 percent per year for the past two decades to about 2 percent per year for the next two decades. It is unclear whether such a reduction can be achieved, and, if so, whether it would be through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care. The legislation also indexes exchange subsidies at a lower rate after 2018, and it establishes a tax on insurance plans with relatively high premiums in 2018 and (beginning in 2020) indexes the tax thresholds to general inflation.”

Take a look at the 1965 cost and revenue projections for Medicare and compare them to the reality of Medicare today. In 1965, Medicare was going to be totally solvent on a 1 percent payroll tax. How’d that work out? (links in the original)

Read the rest for an explanation of how bogus those CBO projections are. What the Republicans should do first is submit their own request to the CBO to score Obamacare realistically. Then they should get started amending how the CBO works so that it isn't bound by the ol' Garbage in, Garbage out rules under which it now operates.


Rick Caird said...

Yes, then CBO os easily gamed. Congress wants it that way and that is why they have placed all the restrictions on how the CBO actually scores legislation.

When Pelosi and Company passed SCHIP, they paid for it by an increase in the cigarette tax. The CBO was forced to assume no one would change their behavior and the increased tax would be collected 100%. Basic economics tells us that is false. I would love to know the real results of the increased tax and how much that underfunded SCHIP. But, government does not want us to know that.

Likewise, Pelosi and Reid removed the "Doc Fix" from the health care bill solely so they could assume their would be no increase in expense to pay doctors. And that no increase covered all 10 years. No one, not even the irrational, believed that to be the case.

The CBO is not, as touted, non partisan. The CBO is another tool for Congress to use to lie to the country.

Anthony Joseph said...

Have you sent this article to Boehner's chief of staff? This is potent stuff. And I don't think it would take an act of God to get it passed as a rule.

Stuart Hutchings said...

Okay Betsy, I have to say I'm baffled by this post.

1) When the original health-care bill proposal was reviewed by the CBO and came up as adding 1.5 Trillion over ten years to the deficit, this was when I believe it included the public option component, you posted about this. With obvious emphasis on the importance of the CBO analysis. Now? Well, we can't trust the CBO.

2) It is true that how the CBO is asked to review a proposal's fiscal impact can be (and has been) used for political effect to either make things appear far worse or far rosier, as an example, look no further than the recent Roadmap proposal by one Paul Ryan. However, in this particular case, this wasn't one party or the other trying to tease out their preferred message. This was basically, repeal the law and put things essentially back to March 09, what is the impact to the budget? Plain and simple. Shame on the CBO for pointing this out.

3) The DocFix is an issue that was created by the poor math skills of a Republican proposal in 1997. Not one single Congress has attempted to "fix it" since as neither party wants to be stuck with the baggage of the budget impact, and frankly the change that was proposed and passed was never intended to have as draconian an effect on the payments to doctors. Again, it was a bad math formula written into the original bill. Why, since no proposal put forward by either party on the topic of healthcare reform has ever included addressing this issue is it the responsibility of PPACA to own the budget impact? Further, where exactly is addressing the DocFix in the Republican congressional plan, other than as cudgel against PPACA?

4) The CBO routinely places "qualifiers" on their analysis, in fact I can't imagine them ever do not doing it. This is precisely because these calculations are 'moment in time' analysis. Major economic changes, such as say a Lehman Brothers collapse or SnL melt down, can radically alter the math. Changes to laws and regulations post implementation of whatever the CBO is analyzing can also change the math. Failure of Congress to follow through on a component of what the CBO analyzed is another concern. Additionally, the most of the changes to healthcare in the PPACA intended to reduce costs, or at least the growth curve, could not be estimated accurately. So the CBO counted them as having zero effect. If any of them work, it improves the math. Basically, the CBO does what anyone in that position would do, give you the math and then say "look, if you change this in any way... then, yup, my math is wrong but its your own damn fault! don't blame me.".

In my fantasy of a good working Congress, every 5-10 years major bills would be revisited to ensure they had the budgetary, fiscal, 'general welfare' improvement intended. If not, figure out what changes are necessary and adjust. No shame in learning from our mistakes. I realize ofcourse that is pure fantasy but I can hope and pray anyway.

Apparently in this case, its more important to villanize the CBO and not pay attention to the fact that the Republicans changed their own just passed rules by excluding repeal from 'cutgo', still have not offered a proposal on an alternative to PPACA (some speechifying but no proposals or bills), and are not about to address the "DocFix" issue they created.

Just assume I must be a liberal so you can ignore everything I said.

tfhr said...

Stuart Hutchings,

You may be a liberal but you've just outlined a strong argument for LESS government involvement in medical care and business. Why would we ignore that?

Rick Caird said...


The CBO analysis is controlled by the assumptions Congress tells the CBO to use. In the case of the health care bill, the assumptions have been exceptionally unrealistic. First, asking the CBO to analyze a proposal over ten years that has 10 years worth of taxes, but only six years of benefits is completely absurd. This has been pointed out continuously. I am surprised you missed it.

Second, Pelosi gamed the analysis. One of the primary methods was to take the Doc Fix out of the bill and make it a separate bill that was to be passed later and, hence, the costs would not be included in the CBO analysis. This was not a Republican problem. This was a Democratic response to higher costs in the health care bill.

The CBO may place some qualifiers on their report, but the headline number is the headline number. How often do the news stories mention the qualifiers? Almost never. The CBO is precluded from questioning the assumptions they are given or providing number that address areas where the assumptions given by Congress are absurd. But, in all of this, no one is vilifying the CBO. The most that is being vilified are the Congressional assumptions. The Democrats provided a series of unrealistic assumptions to define the cost of their health care bill. It is obvious if the CBO uses those identical assumptions to back out the results of the bill, then any so called savings in the original bill will become a cost when it is repealed.

There is no need to ignore what you said because you are a liberal. The lack of logic is more than enough to justify ignoring you. You seem to have missed the whole point of both the Kevin Williamson reference and Betsy's post in order to make a weak counter argument that essentially ignores all the salient points about the CBO. To repeat, the assumptions being used to evaluate the cost of ObamaCare are both unwarranted and wrong, but the CBO is forced to use them. Hence, the CBO evaluations are inaccurate and, not surprisingly, the CBO agrees with that conclusion.

mark said...

It is obvious by his bio that Kevin Williamson is ideologically opposed to Obama's "intrusion into socialism". Why would he be offered as someone to set the record straight? Does he have any expertise that would give his analysis credence?
Interesting how people here use polls and the CBO when they support their position and dismiss them when they don't.

Rick Caird said...

Mark, are you serious? You have just claimed that someone who is "ideologically opposed to Obama's 'intrusion into socialism'" is now not qualified to talk about CBO, CBO assumptions. What, you only want the guys from Jurnolist commenting. good luck with that.

Williamson has been writing on debt and deficits for quite a while. I find he has a good handle on the issues.

Finally, for the third time, when one evaluates the CBO reviews, one must visit the assumptions because if the assumptions are misleading, so is the analysis. This seems like a brand new idea to you, but it is not to Williamson, Elmendorf, or the rest of us. The right has complained about the assumptions Pelosi forced on the CBO from the beginning. Did you miss all that last year?