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Cbo's Latest Warning--and Whether We Should Listen

Can health reform make medical care less expensive over time, as President Obama and his allies claim? And, as we think about whether health reform is a good idea, does anything besides this effort at cost control really matter?

A lot of people seem to think the answer to both questions is “no.” And if they didn’t think that way before this weekend, they may think it now, thanks to a Saturday announcement from the Congressional Budget Office. 

Flipping through channels on Sunday morning, I heard Charles Krauthammer assert as much on "Inside Washington." Expanding insurance coverage while controlling costs is a fantasy, he suggested. It's time to abandon the whole effort.

But this view--which, I know, plenty of people share--is based on a misreading of what the CBO has been saying. It’s also based on a misunderstanding of what reform can, and should, accomplish.

If you'll indulge some serious wonkishness, I'll give a shot at explaining it all.

Let’s start with that CBO announcement. As you may recall, earlier this month the CBO analyzed the House’s version of reform. Architects of that bill had promised that the bill would help “bend the curve”--that is, slowly make medical care more efficient and, in the process, hold down its costs. When the CBO disagreed, saying the bill wasn’t aggressive enough about controlling costs--too many pilot programs, the CBO said, and not enough system-wide changes--the administration suggested adding a new wrinkle.

In particular, the administration suggested creating a new board of medical experts who would have authority to decide how Medicare pays for services. This board, the administration promised, would rejigger Medicare so that it rewarded efficiency--and, in the process, spark changes throughout the health care system.

The board was to be modeled on an existing institution, called the Medicare Payment Advisory Commission (MedPAC). The administration proposed calling its new creation the Independent Medicare Advisory Commission (IMAC). The problem with MedPAC is that nobody listens to it. IMAC’s recommendations were to take effect automatically, unless the president or Congress voted to ignore it. The theory was that such reversals would be pretty uncommon.

Budget Director Peter Orszag promoted the IMAC idea heavily, calling it a “game-changer.” So did West Virginia Senator Jay Rockefeller and Tennessee Congressman Jim Cooper, who had been touting a similar idea for the last few weeks. The fact that Rockefeller, a staunch liberal, and Cooper, a well-known centrist, agreed on this idea gives you a sense of its broad support across the ideological spectrum.

But the CBO was still unimpressed. In an analysis requested by the House leadership and published on Saturday, CBO said it wasn’t confident the IMAC would have a significant impact on costs over time. Among other things, CBO said, the president and Congress might defy expectations and vote to overrule the commission’s recommendations. Or they might just cut off IMAC's funding, rendering it powerless.

Lots of reformers (myself included) were unhappy about this. But, to be fair, the CBO has actually been pretty consistent in explaining how it views costs.

As far as it is concerned, there are a few changes guaranteed to bring down costs significantly over the long run: Change the tax exclusion for group health insurance, so that employers and employees alike have less incentive to purchase generous insurance; write into the law some kind of budget limit on federal health spending, perhaps in the form of automatic spending reductions that go into effect should federal spending get too high; force changes in the way health care is delivered, by pushing doctors into group practices that pay based on salary; change Medicare so that even senior citizens with generous Medigap plans have to pay higher cost-sharing.

The CBO has also said that some other reforms--like better use of information technology, studying which treatments work best, and so on--might bring down the cost of medical care. But the CBO thinks the evidence on the impact of these is lot more speculative. As such, it won’t certify them as definite savers. They are just possible savers.

So, just to review, CBO has not said reforming health care can’t reduce costs. It has not even said the current reform bills can’t reduce costs. It has merely said that the current reform bill don't seem likely to reduce costs, based on its very conservative reading of the evidence, but that a more aggressive reform bill would.

And that means there are now three options on the table.

One is to follow the CBO instructions to the letter--to revise the reform plan further so that it includes either a stronger IMAC, some form of an exclusion cap, or some combination of the two. If a bill includes these measures, CBO is likely to certify--as it has not yet--that reform will indeed reduce the cost of medical care over the long run.

This is the approach Obama and his allies seem to favor--and this is, in many ways, to their great credit. After all, the previous president and his allies rarely took the projections of government actuaries so seriously. And there is far more grounds now than there was then for questioning the projections. Plenty of experts believe that CBO has been too pessimistic in its outlook about reform--and too definitive in its pronouncements. 

A second option would be to ignore the CBO, given the inherent uncertainty in these projections, and to push ahead with the reform plans as they already written. Remember, these plans more or less pay for themselves in the first ten years of the federal budget window. (The House plan has a problem paying for itself after the tenth year, although--as I wrote earlier--it’s not clear how big that problem really is.) And they do include some payment reforms that should make medical care more efficient.

Quite possibly, that will be enough to make health care less expensive over time. And if not, well, then we’ll still have made health insurance available to almost every American--a huge accomplishment that will spare millions of people financial and physical hardship. It would be, again, the single biggest accomplishment in domestic policy since the Great Society. We wouldn't have solved our long-term fiscal problems. But we wouldn't have made them appreciably worse, either.

A third option would be to give up on reform altogether--that is, to do nothing. Medical care would keep getting more expensive, health insurance would keep getting more inaccessible. An insurance policy would cost $20,000 a year instead of $12,000 like it does today, leading to 60 million uninsured instead of 45 million. Even those people with insurance would increasingly find themselves without enough coverage, or the right coverage, for their particular medical needs. The cost of care would continue to impose a crushing burden on the private sector, just as it does government. It would be, in short, a world of hurt.

I suspect this is the option Krauthammer and his allies prefer. Do you?

--Jonathan Cohn