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Don't Believe the Health Care Budget Scoring? You're Not Alone

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Don't Believe the Health Care Budget Scoring? You're Not Alone

December 23, 2009

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Pity the federal government’s health care reform scorekeepers.  The Congressional Budget Office (CBO) and the CMS Medicare Actuary are compelled to credulously analyze the legislation they are given, no matter how implausible, no matter how absurd.  Unfortunately, this had resulted in the issuance of several cost estimates that may be considered “factually” correct, but which reflect future cost cutting measures that anyone who’s been around Washington knows will never happen.  Disingenuous legislating has resulted in disingenuous cost analysis.

This past weekend, proponents triumphantly held aloft a document deemed indispensable to securing the vital 60th vote for Senator Reid’s health care bill: the latest analysis from the Congressional Budget Office, purporting to show that the bill would reduce the federal deficit.
In one of many instances of trumpeting the allegedly clean bill of fiscal health, presidential advisor David Axelrod gushed Sunday on Meet the Press that health care reform is “going to reduce our deficits, the CBO said yesterday, by $132 billion in the first 10 years, over a trillion in the second, and – and stop the inexorable rise of health care costs that threatens to crush our budget...”

That would surely sound compelling to an increasingly debt-fearing voting public.  Yet surveys consistently show public concern that the health bills before Congress will instead increase health care costs.   Swing voters stubbornly persist in questioning whether the federal government can expand coverage by 30 million while bringing down costs at the same time.
We have a message for those skeptics: you’re not crazy for disbelieving the claims made about the fiscal prudence of health care reform.  In fact, reading the analyses with reasonable attention, it becomes abundantly clear that although the cost estimates reflect the letter of the draft law, the scorekeepers don’t believe the cost-saving changes will happen either

First, CBO has already tempered the claim of significant long-term savings.  The very day of Axelrod’s statement, CBO announced an error in the way they had projected the long-term savings to be generated by the bill’s Independent Payment Advisory Board.  This cut CBO’s original estimate of long-term savings nearly in half; no one can say precisely how much, because CBO declined to assign a number to it.  The most clarity CBO would offer was that, “The imprecision of these calculations reflects the even greater degree of uncertainty that attends to them…The expected reduction in deficits would represent a small share of the total deficits that would be likely to arise…”  CBO is clearly dubious of the exaggerated claims of saving a trillion dollars per decade.

CBO is not really to blame for this error, which was an unfortunate but inevitable consequence of the Senate’s frenzied rush to pass this legislation with minimal public scrutiny and analysis.  The staff at CBO is as conscientious as any public sector participant in the health care debate, but the interactive effects of these very complicated legislative changes are simply hard to model.  CBO is generally effective and non-partisan.  If they can’t quantify the bill’s effects in the space of time allowed, neither can anyone else.
Second, the bill (and therefore the score) assumes that doctors’ payments will decline by 21% in 2010 and that Congress does not move a separate bill to restore them.  Again, this is an example of a legislative ruse that few in Washington really believe will be carried out.  In fact, the House has already passed a bill to implement higher payments and to add that cost to the deficit (without any offset).  Senator Reid has also attempted to move such a bill through the Senate.  Though Reid was stymied on his first attempt, he may well try again given that the Administration has signaled a willingness to sign this proposal into law.  If enacted, this measure would spend the advertised ten-year savings from health care reform roughly twice over.


CBO is compelled to score the bill as though the 21% cuts in physician payments will in fact occur (practical considerations aside).  This provision accounts for such a large portion of the bill’s purported deficit reduction, that CBO’s report language reveals their own sense of disbelief:

“These longer-term provisions assume that the provisions are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.  For example, the sustainable growth rate (SGR) mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress.  The legislation would maintain and put into effect a number of procedures that might be difficult to sustain over a long period of time.  Under current law and under the proposal, payment rates for physicians’ services in Medicare would be reduced by about 21 percent in 2010 and then decline further in subsequent years.” (Underline added).

Of course, providing some reassurance that these legislative changes will truly remain in place might add a reason to believe this time it’s different.  The Administration and/or the Congressional majority could dispel part of this concern by affirmatively announcing their commitment to keep the 21% cut in physician payments in the Senate bill, and to block any effort to increase such payments. 

Third, the bill (and therefore the score) assumes that Congress will really allow an independent board to effectuate Medicare spending reductions at a rate of 10-15% per year starting in 2015.  Most of the long-term savings built into the legislation would be generated by this board. Again, Washington precedent makes the assumption that this will really happen very questionable. Take a look at CBO’s report language again, and then decide for yourself:

. . . CBO expected that the legislation as originally proposed would have no significant effect on (the federal budgetary commitment to health care) during the 2020-2029 period; most of the difference in CBO’s assessment arises because the manager’s amendment would lower the threshold for Medicare spending growth that would trigger recommendations for spending reductions by the Independent Payment Advisory Board.  The range of uncertainty surrounding these assessments is quite wide.

CBO is effectively assuming that this board will produce nearly all of the net long-term savings envisioned for this bill.  In their follow-up letter to Senator Reid on December 20th, CBO makes clear just how much the board must cut to accomplish these savings.  The letter states that “savings from changes to the Medicare program…would increase at a rate that is between 10 percent and 15 percent per year during the 2020–2029 period.”  Which brings us to the next point:
Fourth, CBO openly questions whether the savings will materialize, a reflection of the aforementioned skepticism. Their view of whether the savings advertised by the legislation will materialize is perhaps best summarized in the following excerpt from CBO:

CBO expects that Medicare spending under the legislation would increase at an average annual rate of roughly 6 percent during the next two decades – well below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit).  Adjusting for inflation, Medicare spending per beneficiary under the legislation would increase at an average annual rate of roughly 2 percent during the next two decades – well below the roughly 4 percent annual growth rate of the past two decades. It is unclear whether such a reduction in the growth rate could be achieved, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care.” (Underline added.)

CBO apparently thought this was an important enough caveat to include in: a) their December 19th scoring of the bill; b) their December 20th follow-up letter to Senator Reid; and c) the Director’s December 20th blog entry summarizing CBO’s findings.  Basically, CBO has not missed an opportunity in the last few days to state repeatedly, “It is unclear whether such a reduction in the growth rate could be achieved.” 

If CBO’s repeated skepticism about their own budget scores is striking, even more so is the CMS Actuary’s disavowal of findings that the bills would extend Medicare solvency.

e21 previously explained in a November 23rd editorial why the bill’s alleged improvement in Medicare solvency was a gimmick.  In essence, the legislation would implement an increase in the Medicare payroll tax and hundreds of billions in Medicare cost reductions – which, taken alone, would indeed extend Medicare solvency – only to knowingly spend that
savings on expanded health care coverage for others unrelated to Medicare.

Such a maneuver makes a mockery of Trust Fund accounting, in which it is implicitly assumed that funds generated for Medicare and Social Security will be used only for Medicare and Social Security.  The dramatic action of effectively divorcing trust fund collections from Medicare expenditures is a troubling precedent.  While the economic realities of the Trust Funds have been debated for decades it has become increasingly difficult to find plausible arguments that all Trust Fund money hasn’t, in fact, been spent.  This bill should at last sound the death knell for defenses of Trust Fund accounting – for not only would the envisioned Trust Fund money be spent, but it would be spent in the same bill.

This maneuver produced a remarkable rejoinder from the CMS Actuary in his December 10th analysis of the Senate bill.  In effect, the Medicare Actuary stated that while scorekeeping conventions oblige him to show a solvency extension on paper, this extension is wholly illusory:

The combination of lower Part A costs and higher tax revenues results in a lower Federal deficit based on trust fund accounting rules.  However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the Part A trust fund.  In practice, the improved part A financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”  (Underline added.)

Translated:  If you spend Medicare money on other health coverage, you’ve done nothing to truly extend Medicare solvency, regardless of how the scorekeeping appears on paper.  Put even more bluntly, you can’t double count.

Taken together, the documents released over the past few weeks by the CBO and by the CMS Actuary produce a remarkable combination: quantitative analyses showing improvements in the federal budget and in Medicare solvency, coupled with rhetorical explanations of why none of these numbers should be believed.

The skeptical public is almost surely right: health care reform won’t reduce the deficit.  And the scorekeepers covertly, yet clearly, agree with that – even if scoring conventions compel the reports to state otherwise.

At this point in the health care debate, it’s clear that no serious analyst believes that the health care reform now under consideration will “bend the cost curve down” and reduce the federal deficit.  Serious people may be obliged for various reasons to say it, but that is quite different from believing it.

e21 Partnership

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