CBO Wrong on Health Care Reform Cost Numbers

Photo by Joe Mabel via Wikimedia

Just as opponents of  the current Health Care Reform plans often cite reports from The Lewin Group, which, as we posted the other day, turns out to be wholly owned by one of the Nation’s leading insurers, UnitedHealth; they also cite to recent reports by the Congressional Budget Office (CBO) as to the relative fiscal impact of the various plans. Although the CBO does not seem to be owned by UnitedHealth (though recent statements by the CBO (as made clear by Professor Frank Pasquale here) they are certainly susceptible to being labeled “partisan” for exceeding the scope of their role), CBO is prone, it seems, to being wrong.

Professor Pasquale’s post, “Politicized Prognostication at CBO,” details and quotes a number of experts who have expressed grave doubt as to the methodology of the CBO as well as the resultant numbers. For example

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.

Mr. Vladeck, Maggie Mahar, Timothy Jost, Frank Pasquale and Timothy Westmoreland have more company for their doubts regarding the CBO’s numbers.  The rather politic but wholly effective Commonwealth Fund reports that

Over the last 30 years, the Congressional Budget Office (CBO), which assesses the costs of health reform and other legislation as it moves through Congress and is widely respected for its competence and integrity, has underestimated the amount of savings and overestimated the costs that major changes in the health care system would bring, says Jon Gabel in an op-ed published in today’s New York Times.

Drawing on Commonwealth Fund-supported research, Gabel, a senior fellow at the National Opinion Research Center of the University of Chicago, analyzed CBO’s forecasts of three major changes in the Medicare program relative to their ultimate outcomes.

What he found was alarming:

In the first, in the early eighties, Congress adjusted the way in which Medicare would pay hospitals-under the new law paying a fixed amount per admission based upon primary medical condition. “CBO predicted that by 1986 total spending would be $60 billion. Actual spending in 1986 was $49 billion.”

That’s $11 billion on 60. That’s wrong by more than 18%.

In the second, Commonwealth Fund reports that Gabel “found that savings from the Balanced Budget Act of 1997, which changed the way skilled nursing facilities and home health services were reimbursed under Medicare, turned out to be 50 percent greater in 1998 and 113 percent greater in 1999 than the budget office forecast.”

Wrong by 50% and by 113%.

In the third, Commonwealth Fund reports that “CBO predicted that drug prices would rise following the Medicare Modernization Act of 2003, which added prescription drug benefits to Medicare, estimating that spending on the drug benefit would be $206 billion. Actual spending was nearly 40 percent less than that, Gabel found.”

Wrong by nearly 40%.

Combining the error rates for the two years stated in regard to the Balanced Budget Act of 1997, that’s three major Health Reform changes with an average error rate of  more than 46%. That’s nearly half. Wrong by nearly half.

According to the Commonwealth Fund,

Gabel explains that when CBO analyzes initiatives aimed at reducing costs, it requires considerable evidence that similar previous policy changes have saved money. When there is a lack of historical examples, the “unknown” variable often becomes zero. The task for the budget office becomes even more challenging when it considers the impact of more than one change simultaneously-changes that might have synergies.

Considering that we are entertaining unprecedented Health Care Reform which relies upon  the manifold synergies of numerous changes for cost reduction, the CBO process which ascribes a numerical dollar value of  zero to that which is new, seems particularly ill-equipped to assess the fiscal impact of the proposed changes.

The Commonwealth Fund reports that

Gabel observes that underestimating savings that can come from cost-control initiatives in Medicare and throughout the health system could undermine efforts to pass health reform legislation. “As Congress now works on its greatest push for health care reform in generations, the budget office needs to revise the methods it uses to make predictions about costs,” he says.

Failing the methodology revisions requisite to make the CBO’s estimate’s  of cost reduction a valid measure of fiscal impact, the least they could do is preface their lofty and dire pronouncements with an accurate disclaimer: “Historically, Give or take, roughly 50%.”