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How numbers crunchers shape health reform

President Obama may sign a health insurance overhaul this fall, but it will be obscure analysts at the Congressional Budget Office, the non-partisan budget scorekeeper for Congress, who’ll figure out whether the numbers add up.
Image: CBO Director Douglas Elmendorf
Congressional Budget Office Director Douglas Elmendorf testifying at a Senate Budget Committee hearing on health insurance reform last February.Michael Reynolds / EPA file
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Whether President Barack Obama and congressional Democrats succeed in crafting health insurance legislation may depend as much on faceless analysts in the Congressional Budget Office as it does on the political calculus of the situation.

That’s because the CBO’s determination whether a specific proposal’s revenue and cost projections add up will go a long way toward determining if it will fly.

If CBO concludes the legislation will cost more than expected, support for the bill might erode and it could go down to defeat.  On the other hand, if the CBO estimates that a particular provision will save many billions of dollars, that could help build critical mass for the legislation.

“It's not too much of an overstatement to say CBO can make or break health care reform … because we've got to go by your numbers,” Sen. Max Baucus, chairman of the Senate Finance Committee and a leader of efforts to craft the health insurance legislation, told CBO Director Douglas Elmendorf during a hearing earlier this year. “I cannot think of anything that depends so much on CBO as this.”

Why 'CBO is God'Sen. Charles Grassley, R-Iowa, put it more simply when he was chairman of the Finance Committee in 2003, saying, “CBO is God.”

Supporters of the health insurance overhaul are concerned that it could stall if voters doubt that Obama’s plan will curb costs while maintaining current levels of care. They are pressuring the CBO to include long-term — and somewhat speculative — savings in its estimate of the health care bill.

An early test of the CBO’s willingness to venture into such territory could come as early as next week.

Senate Budget Committee chairman Kent Conrad, D-N.D., and the committee’s senior Republican, Sen. Judd Gregg, R-N.H., have requested a CBO analysis of specific policies that “have potential to transform the health care system in ways that reduce spending growth and improve quality, but may be difficult to score.”

To “score” in CBO jargon means to estimate the effect of a bill on the federal budget. That’s the job Congress gave CBO when it created the agency.

Will a policy save money?The agency also is charged with determining whether particular proposals are “scoreable” — that is, specific and measurable enough that CBO can come up with an estimate of their effect on federal spending. 

Another group of analysts at the congressional Joint Committee on Taxation estimates whether changes in tax law will raise or decrease revenue.

Together, the CBO and the Joint Tax Committee staffs wield enormous influence.

Their power comes from their expertise, but also from the peculiar politics of budget-making: Congress created these agencies in part to serve as a scapegoat if a particular tax proposal or spending decision proves unpopular or must be abandoned for some other reason.

In the case of health care, the political maneuvering has begun months before Congress will vote on a final bill.

In a speech in Green Bay, Wis., on Thursday, Obama said that the planned overhaul of the nation's health insurance system “can’t add to our deficit over the next 10 years.”

Obama’s budget chief Peter Orszag, himself a former CBO director, told reporters at the White House on Tuesday that to pay or the overhaul, Obama will propose “hard, scoreable savings” in the Medicare and Medicaid programs, savings that the CBO will be able to certify.

The CBO issues its official cost estimate when a bill is approved by a congressional committee, such as the Senate Finance Committee. But its analysts often work informally with congressional staffers as legislation is being designed, to help estimate the cost of specific provisions in bills, or revenue gained from them.

Some proposed changes in the health insurance overhaul are likely to be straightforward revenue raisers. For instance, if Congress decided that people who didn’t buy insurance would have to pay a penalty, CBO would count those penalty payments as revenue in its budget projections.

How to calculate future costs and savingsFar more difficult is estimating the effect on the budget if Congress, for example, requires that insurers and medical providers use “comparative effectiveness” research to control costs.

“Comparative effectiveness” research examines the relative cost and efficacy of treating patients in different hospitals or regions of the country.

For example, over nearly 15 years, the , a project of the Dartmouth Institute for Health Policy and Clinical Practice, found that higher per-patient spending on Medicare patients did not necessarily result in better care.

For example, its study found that spending per patient in Shreveport, La., for example, was far higher than the national average, while spending in Des Moines, Iowa, which was below average, resulted in better care.

In his speech in Wisconsin, Obama endorsed the comparative effectiveness approach, saying, "Right here in Green Bay you get more quality out of fewer health care dollars than many other communities across this country.

“We need to identify the best practices across the country, learn from the successes, and then duplicate those successes everywhere else.”

But putting numbers to such a concept is easier said than done.

Sen. Olympia Snowe, R-Maine, has complained to Elmendorf that the CBO’s estimate of the money that could be saved by using comparative effectiveness methods — $1.3 billion over 10 years — is too small.

But the CBO chief told her that greater savings could be realized only if Congress decided to reward hospitals that followed cost-effectiveness standards and penalize ones that didn’t.

And he warned that the comparative effectiveness studies “are not going to say in general, ‘this whole type of medicine is completely worthless’ or ‘this whole type is completely useful.’” The assessment is going to be “much more nuanced than that.”

And the more nuanced the assessment is, the less likely that CBO can specify how much money would be saved.

Orszag acknowledged the difficulty, saying “the game changers,” such as comparative effectiveness research, are “very difficult to quantify.”

There’s another problem with the CBO numbers: the time horizon.

Savings, perhaps in 15 yearsCongress directs CBO to use a 10-year window for its cost estimates. But Elmendorf warned that many cost-saving steps “might not yield substantial budget savings or reductions in national health spending within a 10-year window.”

For instance, he said, Medicare could cut payments to hospitals with high rates of re-admissions caused by medical errors, but it would first have to gather data about re-admission rates and notify hospitals. That would likely mean that the full benefit of the change would not be apparent within the 10-year-period, he said.

But despite the difficulty that analysts have in putting a precise number to the savings to be obtained from some policy changes, members of Congress continue to cajole the CBO into producing estimates that would help sell health care reform to the public.

The reason for that is simple: The bigger the CBO's projected cost savings, the smaller the tax increases needed for the bill to be deficit neutral.

The CBO’s leaders “try their darnedest to try to make sure they protect the estimators from any political interference,” said Eugene Steuerle, a former Treasury Department official who is now vice president of the Peter G. Peterson Foundation.

But he added, “In many cases the information available to the estimator is quite minimal. The estimator may still have to provide a number, even though they may very minimal information by which to do it.”