CBO’s ObamaCare analyses carry big uncertainties

posted at 10:12 am on March 19, 2010 by Ed Morrissey

Yesterday, the CBO released its initial analysis of the House reconciliation bill that amends the Senate version of ObamaCare.  While many people stressed that this was a “preliminary” estimate — the “final” version is due in a couple of days — the CBO’s analyses rarely differ substantially from the preliminary to the final stage.  The Washington Post comes closer to the real problem with any CBO analysis, which is that the bill attempts so many changes that a comprehensive analysis becomes almost impossible to make.  Analysts start having to make a compounding series of assumptions that could well prove false, which would result in unpredicted outcomes.

The Post posits two scenarios in which the outcomes would differ greatly than the predictions:

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.

Given that “comparative effectiveness” primarily provides a means for rationing, the chances of it hiking costs are on the low side.  The real danger with comparative effectiveness is that it will be used to deny treatments in a government-run system, or as our President once put it, patients will be told to just take painkillers instead of receiving effective treatments.  It could potentially act in the same manner as defensive medicine does now, demanding a series of tests for conditions that aren’t indicated in patient presentations, but that’s not terribly likely since the government would then have to fund it.

The second scenario is much, much more likely to come to fruition:

But perhaps the biggest risk that could cause the budget impact to diverge from the CBO estimates comes from Congress. The estimates assume that the legislation plays out as written over the coming decade, which would mean reining in the growth of payments to doctors and hospitals and implementing a tax on high-cost health insurance plans.

Those two policies are responsible for bringing in the revenue and cost savings that allow the plan to expand coverage to 32 million more Americans yet, according to the projections, bring down the deficit.

But that falls apart if a future Congress finds the cuts or taxes too painful to handle and overturns them.

That will fall apart faster than the Post suggests.  This Congress is already debating a “doctor fix” that rescinds the reimbursement cuts to providers, even though the numbers they submitted to the CBO rely on those lower figures.  The Post also fails to identify the larger risk with the so-called “Cadillac plan” tax, which is that insurance companies will simply stop offering those kinds of plans in the future.  They will tailor their plans to avoid the tax, and as a result, the expected revenues from that tax will eventually dissipate — and probably much faster than anyone thinks.

The CBO should have developed alternate cases for these potential outcomes, but in their defense, they’ve been asked to score a fantasy from the very beginning.   The Post reminds us that there are plenty of reasons to take the CBO analysis with a Lot’s Wife-sized grain of salt, not the least of which is the fact that it depends on Congress to follow through on their pledges.

This is the reason that incremental change makes a lot more sense.  It eliminates the need to compound assumptions, and it’s more reversible when it fails.

Keith Hennessey has more thoughts along these same lines.

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