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And Now For Some Cbo-bashing

Obviously the CBO abides by certain rules when it scores legislation, and so while even CBO officials acknowledge that their projections don't necessarily reflect reality, it's largely beyond their control. But, of course, that's an argument for why CBO's hands are tied, not for why the rest of us should slavishly abide by its pronouncements. Particularly when it comes to health care, where the agency's batting average really leaves something to be desired. As Bruce Vladeck, the administrator of Medicare and Medicaid under Bill Clinton, notes in a Roll Call op-ed today: 

Put most simply, 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. Most recently, it overestimated the five-year cost of Medicare Part D — the prescription drug benefit -— by more than 35%. Even more dramatically, the CBO’s estimates of the Medicare savings from the Balanced Budget Act of 1997 underestimated the impact, on average, by a full 100%. That’s right: In the BBA’s first three years, Medicare spending fell fully twice as fast as the CBO had projected.

Vladeck gets into some of the reasons why CBO is so bad at forecasting costs and savings. But it may actually be even worse than he says. It turns out CBO's methodology is biased against proposed savings--which is to say, it underestimates savings by even more than it overestimates costs. As Washington and Lee law professor Timothy Stoltzfus Jost explains in Politico's "The Arena":

It is much easier to score costs than cost-savings. Legislation pending in both the House and Senate in fact includes state-of-the art proposals that many health policy experts do believe will result in real savings, as the CBO recognizes. It is easy, however, to figure out how many people are under a particular multiple of the poverty level and how much it will cost to cover them through Medicaid or to provide them with insurance subsidies, i.e the cost of reform. It is much harder to figure out how much public plan choice or accountable care organizatons will save the federal government. The CBO guesses conservatively with respect to savings, and the media reports this as a "blow to reform."

On top of which, as both Vladeck and Jost (and basic intuition) point out, the CBO is much better at projecting costs a year or two out then it is in five or ten, to say nothing about 20 or 30. But, of course, that only compounds the problem, since the costs of health care reform come mostly up front and the savings are likely to happen over time (and CBO's default position is very conservative when it doesn't feel like it can concretely predict something). So, in a nutshell, the very places where the Obama plan is likely to achieve the biggest benefits are the places where the CBO is likely to grade it most harshly.* Doesn't sound like a great deal.

*Obviously you don't want to just naively certify long-term cost savings that are highly speculative. On the other hand, there has to be some political incentive for an administration to produce long-term savings; otherwise we just keep budgeting for the next ten-year window without doing anything about the asteroid that's going to strike us in the 2020s, '30s, and '40s. (That is, until it's too late.) But the CBO scoring process basically eliminates those incentives.

--Noam Scheiber