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NYT Editorial: CBO Probably Underestimated Savings From Healthcare Reform

Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate healt

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Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate health committee do not propose “the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a signficant amount.”

This Sunday editorial in the New York Times points out that the Congressional Budget Office has underestimated potential savings from healthcare reform. This should help persuade some of the fence sitters:

Douglas Elmendorf, director of the Congressional Budget Office, testified in mid-July that he saw no fundamental changes offered by the bills then emerging that would reduce the trajectory of federal health spending significantly. The implication was that the pending bills could actually make deficits bigger after the initial break-even decade. That’s because covering the uninsured would increase federal spending and a high rate of medical inflation applied to that larger base would make future deficits worse. However, Mr. Elmendorf was looking only at bills that had cleared committees, which did not include one still being fashioned by the pivotal Senate Finance Committee.

Senator Max Baucus, the Democrat who heads that committee, revealed last week that the C.B.O. had evaluated a draft of his bill and concluded that it would cover 95 percent of all Americans, for a cost below $900 billion, and would actually start reducing the deficit in 2019. That is better than the administration’s goal of being deficit-neutral in that final year, but we will not know for sure until the C.B.O. issues a verdict on a final bill.

The budget office provides vitally important guidance to Congress, but focuses primarily on how new legislation might affect federal spending and federal deficits. The office gives only a cursory glance at how reforms might cut costs for the overall system and yield savings for employers, families and state and local governments, the issue that concerns most people.

Moreover, the office makes middle-of-the road estimates of cost and more pessimistic estimates of savings. That makes sense (lawmakers and government agencies routinely exaggerate the virtues of their proposals), but it makes it harder to evaluate proposed innovations.

Respected analysts who are not bound by the C.B.O.’s conservatism have projected significant savings from reforms that the C.B.O. scores poorly. The Commonwealth Fund, a research organization, and David Cutler, a Harvard health economist, separately estimate that an array of reforms could save the government hundreds of billions of dollars in the first decade and the health care system even more. These estimates, coming from advocates of reform, may be too rosy, but underscore the point that the C.B.O. may undervalue savings.

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