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Monday, May 11, 2009

How Will the CBO Score Today's Health Care Announcement?

Mathew Yglesias explains that the importance of today's announcement that major health organizations believe it possible to reduce the escalation in health care costs is the effect the announcement may have on how the CBO scores savings from the health care plan:

The Significance of Today’s Health Care Announcement, by Mathew Yglesias: Paul Krugman and Jonathan Cohn wax enthusiastic about the news that representatives for the nation’s major health care provider organizations ... will come to the White House and announce that they believe it’s possible to achieve $2 trillion in cost savings over ten years without compromising patient care. Ezra Klein is more skeptical, worrying that these groups haven’t really made any firm commitments to anything in particular.

But the real import of today’s event isn’t in its signal for what industry insiders may do in the future, it’s for the Congressional Budget Office. The main impediment to a health care deal, at this point, is cost. The up-front costs are large. To cover these costs, the Obama administration proposed several exceedingly reasonable tax changes, focused on curbing deductions for high-income taxpayer. This is the most economically efficient possible way of raising revenue, so naturally congressional Democrats rejected it out of hand.

That means that to make the costs work, it’s going to be necessary to rely on reform’s inherent potential to wring some of the massive waste out of the system. The problem here is that the CBO has been reluctant to “score” such savings in its official account of the bill. As Igor Volsky emphasizes, this industry statement is an important challenge to that CBO reluctance:

Early reports indicate that the signers ... hope to contain costs by implementing “aggressive efforts to prevent obesity, coordinate care, manage chronic illnesses and curtail unnecessary tests and procedures; by standardizing insurance claim forms; and by increasing the use of information technology, like electronic medical records.”

The industry is suggesting that these cost containment measures — which don’t score too well with the Congressional Budget Office — would in fact yield cost savings and help finance health reform. The letter ... takes on the CBO, whose models are likely under-scoring the savings from reforms.

Whatever kind of backstabbing these industry groups may or may not do in the future, they won’t be able to take back the fact that once upon a time they stood beside the White House in agreeing that it’s possible to achieve massive cost-savings without compromising patient care. That argument may well prove hugely important, politically, to getting a package through congress.

The idea is to pay for reform in part through the CBO scoring procedure, but if CBO won't recognize anticipated savings, then this strategy doesn't work and reform would have to be paid for by raising taxes instead, something congress is reluctant to do. The hope is that today's announcement from health industry representatives that cost savings are possible will change the CBOs willingness to score these cost savings. If the cost savings don't actually materialize later, then some way of making up for the increased costs will have to be found, but for the moment the focus is on getting a bill through congress (this is also the motivation for the administration's recent announcement of the intent to raise 210 billion over 10 years by changing the rules on the use of offshore tax havens, the saving would be used to offset the cost of health care reform).

Update: Ezra Klein:

Is it All about the CBO?, by Ezra Klein: It's true that legislators are very concerned that the Congressional Budget Office won't score likely savings. That will mean the bill's total price tag is higher and the legislation is harder to pay for. But this letter doesn't obviate that problem. It doesn't even change it. The issue isn't that a CBO price tag is credible, and so you need another credible price tag if you want to argue against it. It's that the CBO number is one used by the budget committees, and so if health care is going to pass under pay-go rules -- and my understanding is that it will -- then you have to find revenues that match whatever CBO says the cost is. The revenues can't just match what the industry says the cost is. For much more on the importance of CBO and the price tag it selects, read this piece.

The other option here is something called "directed scoring." Under this scenario, Congress would essentially order the CBO to score health reform in a certain way. I know that some quarters are discussing this possibility, but I don't think most people believe you can get very far with it. More on this later.

    Posted by on Monday, May 11, 2009 at 10:03 AM in Economics, Health Care, Policy | Permalink  TrackBack (0)  Comments (17)

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