The New Health Dialogue

The Congressional Budget Office, and their estimates for the costs and savings that will come from different health reform proposals, is often the source of frustration for some in the health reform debate.Earlier this week, Jon R.Gabel wrote an op-ed in the New York Times, taking a closer look at some past CBO numbers, and found their record for predicting the costs of health reform ito be less than perfect...

In the 1980s, Congress reformed Medicare payment to hospitals. Rather than fee-for-service, Medicare paid predetermined amounts based on the patient's medical problem, leading to shorter stays in the hospital, lower administrative costs (less paperwork) and a reduced utilization of costly diagnostic services. The CBO said this would cost $60 billion from 1983 to 1986 -- but total spending ended up at only $49 billion. Rather than admitting lots of moderately ill patients and discharging them quickly, as the CBO predicted, hospitals instituted stronger programs for reviewing admissions and admitted fewer patients.

The CBO also underestimated savings from the Balanced Budget Act of 1997 and more recently, overestimated the cost of the Medicare Modernization Act of 2003. The savings in the early nineties were greater than the CBO predicted, 50 percent higher in 1998 and 113 percent greater in 1999. In 2003, the CBO predicted Medicare Part D would cause prices to rise as patients demanded more drugs, driving spending up to $206 billion. It turned out actual spending was 40 percent less.

Why is the CBO zero-for-three in predicting the impact of major health reform initiatives? According Gabel,

The Congressional Budget Office's consistent forecasting errors arose not from any partisan bias, but from its methods of projection. In analyzing initiatives meant to save money, it helps to be able to refer to similar initiatives in the past that saved money. When there aren't enough good historical examples to go by, the estimated savings based on past experience is essentially considered to be unknown. Too often, "unknown" becomes zero -- even though zero is not a logical estimate.

The office also struggles when trying to predict the impact of multiple initiatives at once, says Gabel. Medical malpractice reform and comparative effectiveness research might not yield significant savings on their own, but combined, they could drive down costs by making doctors feel more confident about prescribing procedures that are scientifically proven to be effective, and less worried about getting sued for not prescribing dozens of unnecessary tests. Gabel concludes:

The budget office's cautious methods may have unintended consequences in the current health care reform effort. By underestimating the savings that can come from improved Medicare payment procedures and other cost-control initiatives, the budget office leads Congress to think that politically unpopular cost-cutting initiatives will have, at best, only modest effects. This, in turn, forces Congress to believe it can pay for reform only by raising taxes, which then makes reform legislation more difficult to pass.

The Congressional Budget Office's integrity is beyond questioning. But the record shows that it has substantially overestimated the cost of health care reform three times out of three. As Congress now works on its greatest push for reform in generations, the budget office needs to revise the methods it uses to make predictions about costs.