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THE IMPORTANCE OF THE NUMBER.
Kennedy's office sent out a press release. The New York Times ran a story. The Wonk Room wrote up the findings. This is not how Congressional Budget Office reports are usually greeted. But the release of their two books on health care -- Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care -- is a big deal. Indeed, the books are unprecedented. But the coverage thus far isn't quite getting at their import.
To understand why these books matter, consider the first sentence of my profile of Peter Orszag, former head of the Congressional Budget Office and incoming director of the Office of Management and Budget. It's a quote from Senator Ron Wyden, one of Congress's most involved and aware reformers. "The history of health reform," he says, "is congressmen sending health legislation off to the Congressional Budget Office to die."
This is not part of the normal history. The CBO's rulings don't make much news. But they can be decisive.
To understand why, ask yourself this question: How do we decide how much a government program costs? It's an essential question. Programs need prices, because the government has to produce a budget. But pricing legislation in advance is impossible. Consider the challenges of a health-care plan that only exists on paper. What medical technologies will emerge in coming years? Will there be a recession that forces more Americans onto government subsidies? Will the next flu season be a bad one? No one knows.
But you still need a number. So Washington operates amidst a tacitly agreed-upon imprecision. What the CBO says, goes. "In this town," says Henry Aaron, a senior economics fellow at the Brookings Institution, "it's not infrequent to hear people say it doesn't make any difference what it really costs. It only matters what CBO says it costs."
The CBO's most famous -- or infamous -- intervention in a legislative battle was its estimate of the 1994 Clinton health-care proposal. "The major issue," recalls Robert Reischauer, then director of the CBO, "was not how much it cost but whether the premiums that you were charged as an individual were governmental in nature and would thus be in the budget." Reischauer and the CBO decided they were. The premiums paid by every American would be included in the Number. This meant the Number was huge -- vastly larger than the price tag previously affixed to the proposal by the Clinton administration. Hearing the news, one senior administration official moaned to The Washington Post, "The Republicans will jump all over this and say we're increasing the budget by 25 percent and putting through the biggest tax increase in history." The New York Times editorialized that "the opponents of President Clinton's health care bill think they have struck political gold in an analysis of the bill just released by the Congressional Budget Office."
They were right. Donna Shalala, Clinton's secretary of health and human services, called the ruling "devastating." But through all of this, Clinton's bill never changed. Nor did the amount individual Americans would pay. Only the Number changed. And it wasn't an obvious decision that the CBO made. Indeed, even some of the CBO's leading lights questioned the judgment. "In all honesty," says Rivlin, who by that time was head of the White House Office of Management and Budget, "I wasn't sure my colleagues had done it right. I mean there are mandated expenditures such as if you have to put a handicap ramp in front of your building. That's a mandatory expenditure, but that's not a tax." But it didn't matter. That was the Number, and it helped kill the bill.
The books that the CBO released this week are essentially a guide to the CBO's scoring process. They tell congressmen, in advance, how the Number will be built. The Wonk Room and The New York Times are focusing on the equations. But they're not what's changed. Rather, the difference is that Congress knows what they'll be in advance. The scoring process will still be a minefield, but now legislators will have a map. There won't be a situation analogous to 1994, when the White House was shocked by an unwelcome assumption and their legislation was mortally wounded by a staggering price point. Obama and his allies in Congress, along with Orszag's help, will be able to build a bill able to survive the scoring process. They can, effectively, decide their own Number.
Image used under a CC license from Train Orphans.
COMMENTS (16)
I think an tag needs to be closed.
Posted by: Carlos | December 19, 2008 3:20 PM
you forgot an enting italic-tag and now the entire site is in italics. just fyi.
Posted by: rageahol | December 19, 2008 3:22 PM
Wow. So this is a treasure trove. 115 options laid out with cost-savings? A lot to read there.
A couple of reactions:
-- The NYTimes and Wonk Room both correctly cite that the CBO estimated that Health IT would save $7 billion over the next decade. They didn't mention that CBO's estimate was paid on savings due to to physician reimbursement penalties, i.e. based on the assumed rate of adoption (or lack thereof) and an assumed 5% penalty on reimbursement rates, Medicare will save $7 billion compared to the 2% bonus offered to physicians who do implement health IT. What they didn't do, smartly, was assume actual cost savings from the use of health IT itself. They correctly note that increased adherence/compliance due to health IT are likely to offset efficiency gains, leaving you with the costs and savings associated with the bonus-penalty policy as the driver of the $7 billion. Well done by CBO, not so much by the journalists.
-- This was is just for fun, from option 112 (!):
CBO’s current-law baseline projections of Medicare’s perenrollee
spending for 2009 through 2013, which reflect a
21 percent reduction in physician payment rates for 2010
and further reductions for most of the following years.
(Some people view current-law baseline projections as an
unrealistic estimate of Medicare’s spending because lawmakers
have enacted legislation to prevent large reductions
in physicians’ fees for several years in a row.) (Emphasis added in bold)
Um, some people think that's unrealistic? Who doesn't think that is unrealistic?
On a serious note, this is an interesting question of who's shaping policy and who's assessing it. This analysis is significantly more detailed than anything put out by Obama, Baucus, CAP and the like. These options (of the 20 or so that I've read) are pretty well-described and capture the key elements. So as Ezra suggests, Congress now has a Chinese menu of reform policies. Its a very interesting shift in policy-making responsibilities.
In addition, this provides a rich starting point to discuss the realism of cost estimates as described. As shown with the health IT example, the assumptions are clearly laid out, so it will be interesting if "the number" isn't taken as fact by all sides. For the 20 options that I was most interested in, there are a number of assumptions that I would question. To be continued.
PS Office of Comparative Effectiveness was a net cost, not cost-saving according to CBO. While the Office did have cost reductions, those savings were more than offset from the spending by the Office itself. Again, we don't need to take the numbers as provided by the journalists when the assumptions are so clearly laid out.
PPS Thanks for providing the link.
Posted by: wisewon | December 19, 2008 4:49 PM
I'd also just note that the 10year budget window is important on CED. Short-term costs with the possibility of long-term savings. But I agree with CBO that you can't build those in without a lot more info.
Posted by: Ezra | December 19, 2008 5:41 PM
Hi Ezra. When you include CC photos from Flickr in your posts, seems like you should link to the original photo, not just the photographer's site. I love all the Flickr photos, but sometimes it's really hard to find the one you used in their archives. Cheers matey!
Posted by: Uncle Vinny | December 19, 2008 7:10 PM
The primary difference between now and 1994 w.r.t. the CBO is that everyone knows to watch out for it. Blissed ignorance of the CBO was just one more flaw Ira Magaziner and Hillary brought from Arkansas. They didn't consult with Congress sufficiently to know what to expect and were then (unavoidably) blindsided by the scoring.
I don't know if you've read the volumes, but they're anything but a roadmap. Like the Baucus paper they present a series of non-exclusive principles and leave flexibility to choose among them later. Managed competition? May save money depending on how you set it up. Maybe not. Maximizing enrollment with a mandate? Maybe if it's enforcable and you create some kind of subsidy. A mandate combined with a subsidy combined with a managed competition combined with an excessively generous minimum benefits package . . . umm . . . ?
And unbeknownst to many recent Orszagphiles, CBO has long produced a budget options volume. It has gotten almost no attention because the options are completely unpalatable to Congress. This is just an expanded version for health. How many of the new ones are going to be palatable?
Posted by: senatorwho | December 19, 2008 11:57 PM
Sorry, wrong number. The Number that matters is not the Gummint Spending Number. It's the Number for overall health spending.
It's not 1994. We're smart enough to have a rational debate this time, one that looks at the impact of reform on combined taxes, private premiums and out of pocket expenditures.
BTW, when you look at the right Number, single payer wins hands down. CF Reischauer's scoring in both '92 and '94.
Of course, we'll look at the wrong number and have the stupid debate because business democrats wet their pants whenever Republicans yell "socialism," except when it means bailing out Bob Rubin.
Too bad. Wrong Number.
Posted by: jcc2455 | December 20, 2008 12:05 AM
Ezra,
These are excellent reports that provide very helpful guidelines for the policy makers in Congress, but with one glaring exception in the volume, "Key Issues in Analyzing Major Health Insurance Proposals." Quoting from my blog over at pnhp.org:
"It describes in considerable detail the various policy decisions that must be made as we approach the goal of affordable health care for everyone, but only those policies that would apply to a multi-payer system of private and public programs.
"What is clear is that each policy decision under this scenario increases the administrative complexities of the financing system, and that the inevitable tradeoffs that must be made can only result in compromises that cause us to fall short on our goals of universality, equity, efficiency, quality, access, and affordability. Once the decision is made that we must build on our current system, there is no possible way to avoid spending more money for reform that would fall so short of a high-performance system.
"There is a very serious deficiency in this study. In the 167 pages constituting the main body of this report, there are only two paragraphs on a model (single payer) that would be far less expensive and would come as close as possible to achieving our goals. To say that single payer received short shrift in this important policy document is not simply an understatement; it is a glaring example of the extent to which Congress has gone to glibly dismiss single payer as not being a feasible option. They are going to make policy decisions impacting not only one-sixth of our entire economy, but also the physical and financial well being of each of us."
It is too early to remove single payer from the table. It deserves from the CBO the same detailed analysis that was provided for the multi-payer model catering to the special interests.
Posted by: Don McCanne, MD | December 20, 2008 9:09 AM
Massachusetts State Health Plan has National Appeal?
see - the story
My comment
"Kudos to Massachusetts for jumping in first. But we can learn from their mistakes also. And there is a glaring one!
Mass,(especially Boston) being one the hubs of the excesses of a high-tech-high-cost treatment driven "disease care" system does NOT have an economically sustainable "health care" system.
I'm a Doc from Philly which has the exact same problem.
In cities like Boston, Philly, New York, Houston, LA and many others we need to transform medicine. Much of the excess has got to go and move toward primary care, prevention, home care and hospice.
It will be painful but it is an economic imperative. Because, if we don't, the current approach will bankrupt the economies of these cities and states and the nation as a whole
Believe it! "
Dr. Rick Lippin
Southampton,Pa
Posted by: Dr. Rick Lippin | December 20, 2008 3:54 PM
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Posted by: seo | December 31, 2008 3:46 AM
Like the Baucus paper they present a series of non-exclusive principles and leave flexibility to choose among them later. Managed competition? May save money depending on how you set it up. Maybe not. Maximizing enrollment with a mandate? Maybe if it's enforcable and you create some kind of subsidy.
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