What the CBO said (and didn’t say)

WHAT THE CBO SAID (AND DIDN’T SAY)…. This week, policymakers moved closer to the creation of a new commission to help control what Medicare pays doctors and hospitals. The commission, to be made up of doctors and medical experts, would ideally help lower costs more effectively than Congress, and the idea has drawn favor from conservatives.

The Congressional Budget Office, however, believes the likely savings would be modest. It reported yesterday that the government would likely only save $2 billion over the next decade from the creation of Independent Medicare Advisory Council (IMAC). In the context of a trillion-dollar reform effort, $2 billion isn’t much.

The Politico described this as another “blow to the Democrat’s health reform efforts,” and noted that “Republicans pounced on CBO’s analysis as another demonstration that Democratic proposals don’t control costs.”

There is, however, another, more complete, side to this. OMB Director Peter Orszag, who used to lead the CBO, had a very different take on the news, and added some important context.

CBO noted that this [IMAC] approach could lead to significant long-term savings in federal spending on health care and that the available evidence implies that a substantial share of spending on health care contributes little, if anything, to the overall health of the nation. This supports what President Obama has said all along: we can reduce waste and unnecessary spending without reducing quality of care and benefits.

In part because legislation under consideration already includes substantial savings in Medicare over the next decade, CBO found modest additional medium-term savings from this proposal — $2 billion over 10 years. The point of the proposal, however, was never to generate savings over the next decade. (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.) Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term. In other words, in the terminology of our belt-and-suspenders approach to a fiscally responsible health reform, the IMAC is a game changer not a scoreable offset.

With regard to the long-term impact, CBO suggested that the proposal, with several specific tweaks that would strengthen its operations, could generate significant savings…. The bottom line is that it is very rare for CBO to conclude that a specific legislative proposal would generate significant long-term savings so it is noteworthy that, with some modifications, CBO reached such a conclusion with regard to the IMAC concept.

A final note is worth underscoring. As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today’s analysis from CBO could feed that perception. For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could “eventually achieve annual savings equal to several percent of Medicare spending…[which] would amount to tens of billions of dollars per year after 2019.” Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals. In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped.

Ezra Klein added, “The potential savings from IMAC aren’t something you can plug into a formula. After all, the point of IMAC is not that it would implement the best ideas we have in 2009, but that it will give a body of experts the ability to implement the best ideas they have in 2022, and 2034, and 2019, and every other year. CBO can’t guess at what those ideas will be any more than I can. We don’t have the data they’ll be using, we don’t know the technology they’ll be able to employ, and it’s impossible to estimate the political climate. May as well ask what the top-rated NBC show will be in 2029.”

But that’s exactly what’s happened. To use Ezra’s metaphor, the CBO not only predicted what the top-rated NBC show will be in 2029, but also its rating/share and expected advertising revenue.

Digby noted last night that these details may not matter: “The Village doesn’t care about the details, they care about Chuck Todd’s ‘political reality’ and they are getting very excited over the prospect of Obama’s Waterloo.”

Perhaps. But for those who take details seriously, the CBO’s conclusions yesterday shouldn’t undermine the larger reform campaign at all.