What the CBO Director says about the impact of health care reform on the deficit

22 Apr


By all accounts the Congressional Budget Office (CBO) is a credible organization with many skilled professionals trying to do an impossible task of estimating the cost of government in an environment of uncertainty and instability (to put it mildly).  The struggle between this effort and the shenanigans in Congress is a good example of how difficult it can be.  Does health care reform reduce the deficit or increase it?  That depends on which set of assumptions you use and whether those assumptions pan out.  In the case of health care reform it is a good bet many of the assumptions will not be fulfilled simply becasue they are unrealistic or for political reasons dictated by Congress.  Take a look for yourself what the Director of the CBO says.  NOTE: I have added the bold to certain statements.

Just git er done!

From the Congressional Budget Office Director’s Blog, April 20, 2010.

Some observers have asserted that CBO and JCT have misestimated the effects of the changes in law. Concerns have been expressed in different directions—for example, some believe that subsidies will be more expensive than we project, while others maintain that Medicare reforms will save more money than we project.

o Our estimates reflect the middle of the distribution of possible outcomes based on our careful analysis and professional judgment, drawing upon relevant research by other experts. Nevertheless, 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.

Some observers have asserted that budget conventions hide or misrepresent certain effects of the law, such as its impact on future discretionary spending, its effect on the government’s ability to pay Medicare benefits, and its effects on the economy.

o The estimates I discussed above focus on direct spending and revenues because those are the figures that are relevant for the pay-as-you-go rules and those effects will occur without any additional legislative action. As CBO’s estimate noted, the legislation will lead to some increases in discretionary spending (that is, spending subject to future appropriation action) that are not included in the deficit figures cited above.

o The legislation will improve the cash flow in the Hospital Insurance trust fund (that is, Part A of Medicare) by more than $400 billion over 10 years. Higher balances in the fund will give the government legal authority to pay Medicare benefits longer, but most of the money will pay for new programs rather than reduce future budget deficits and therefore will not enhance the government’s economic ability to pay Medicare benefits.

o Following standard procedures for the Congressional budget process, the estimates do not include any effects of the legislation on overall economic output, although CBO wrote last summer about possible effects of health reform proposals on output.

Some observers have asserted that the law will be changed in the future in ways that will make deficits worse.

o CBO estimates the effects of proposals as written and does not forecast future policy changes. As is the case for many pieces of legislation, the budgetary impact of the health reform legislation could indeed be quite different if key provisions are ultimately changed.

o In fact, 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.

The above is not exactly what you hear at the political podium is it?

What's on your mind?