Congressional Budget Office's sunny forecast carries big uncertainties

In Rose Garden remarks, President Obama said his health care reform would be the most significant effort to reduce the deficit since the balanced budget act of the 1990s.
By Neil Irwin
Washington Post Staff Writer
Friday, March 19, 2010

The latest estimate of what health-care reform would mean for the government's finances was such a hot document Thursday that at times the Congressional Budget Office's Web site couldn't handle the traffic.

But as much as the 25-page "score" of the legislation was treated as holy writ in Washington -- Democrats eagerly flagged its conclusion that the package they aim to pass this weekend would cut the deficit by $138 billion over the coming decade -- the reality is considerably messier.

Budget experts generally have high praise for the work of CBO analysts, the non-ideological technocrats who crunch the numbers to estimate the fiscal impact of legislation. But their work is often more art than science, and although the forecasts that accompany legislation are always filled with uncertainty, this one contains more than most.

One major reason is the sheer complexity of the legislation. If Congress were considering, say, a 20-cent increase in the gasoline tax, the CBO could easily analyze how that would affect gas consumption and do some simple math to calculate how much money it would raise. The same goes for figuring out the cost of legislation that offers a new benefit, such as an expansion of food stamps.

But the proposal on the table contains sweeping changes that would touch almost all corners of the health-care system, and the changes interrelate in hard-to-predict ways. For example, the legislation contains subsidies for those who would not be able to afford health coverage on their own -- but the cost of those subsidies could vary a lot depending on how much other elements of the legislation change the price of health insurance, such as through provisions requiring minimum coverage levels.

Although some data can help budget analysts estimate the fiscal impact of those policies, such as when similar policies were enacted in Massachusetts, the range of possible outcomes is especially wide because of the complexity involved.

"The health-care sector is incredibly complicated, with patients and doctors and insurers and hospitals and so on," said William Gale, a senior fellow at the Brookings Institution. "There are a lot of layers and interacting agents, so it's very difficult to predict the outcome of policy changes that affect everyone's incentives."

If the CBO did its job well, the errors in estimating the costs and revenue from various elements of the legislation will cancel each other out, and the fiscal impact will be roughly according to the forecast. But budget experts identify two scenarios that could cause the results to vary dramatically.

The bill contains numerous provisions meant to reduce the long-run growth in the cost of health care, such as by funding "comparative effectiveness research" to figure out what treatment strategies offer the most bang for the buck. Insurance companies would push their customers to pursue those treatments and thus keep costs down.

But the CBO was cautious, predicting zero savings from that program and others meant to develop ways to make the health system more cost-effective over time.

Some health experts have argued that the agency was too conservative in its approach and that those programs could lead to vast savings in the cost of health care and make the legislation a boon for the federal budget.

But budget experts are more wary, concerned that the programs could just as easily produce few savings, or even cause higher costs.

CONTINUED     1        >

© 2010 The Washington Post Company