Wednesday, August 26, 2009

Do CBO Numbers Add Up?

An op-ed in The New York Times claims that, over the last three decades, the Congressional Budget Office (CBO) has underestimated the amount of savings and overestimated the costs that major changes in the health care system would bring.

"As Congress now works on its greatest push for health care reform in generations, the budget office needs to revise the methods it uses to make predictions about costs," writes John Gabel, senior fellow at the National Opinion Research Center of the University of Chicago.

Drawing on Commonwealth Fund-supported research, Gabel analyzed CBO's forecasts of three major changes in the Medicare program relative to their ultimate outcomes. He found that:

  • in the early 1980s, CBO underestimated savings from reforms Congress made in the way Medicare paid hospitals by $11 billion.
  • savings from the Balanced Budget Act of 1997, which changed the way skilled nursing facilities and home health services were reimbursed under Medicare, turned out to be 50 percent greater in 1998 and 113 percent greater in 1999 than the budget office forecast.
  • the Medicare Modernization Act of 2003, which added prescription drug benefits to Medicare, cost nearly 40 percent less than the $206 billion predicted by CBO.

Gabel says CBO's current process to analyze initiatives aimed at reducing costs requires considerable evidence that similar previous policy changes have saved money. He says when there is a lack of historical examples, the "unknown" variable often becomes zero. The task for the budget office becomes even more challenging, he says, when it considers the impact of more than one change simultaneously—changes that might have synergies.


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