CBO, Health, and the Budget

As I’ve discussed in a series of posts (e.g., here and here), the Congressional Budget Office (CBO) has a pivotal role in the health debate. By telling Congress how potential policy changes would affect the budget, CBO analyses can make or break proposed legislation.

As a result, I think it’s important that participants in the health debate – policymakers, analysts, journalists, and ordinary citizens – understand how CBO approaches health issues. That can sometimes be a challenge, however. As I note in a new paper:

CBO analyses often rely on sophisticated economic modeling and are usually framed in ways that match the specific, sometimes arcane, requirements of the congressional budget process. As a result, the cost estimates and related analyses may sometimes be challenging to understand. The unfortunate result can be confusion about what the scores mean and, equally important, what they do not mean.

That’s not a knock on CBO, which I think does a great job; it’s just the nature of the work.

To help reduce potential confusion, my paper (“Understanding CBO Health Cost Estimates”) discusses how CBO approaches cost estimates and some of the particular issues that arise in health policy. Many of the insights come directly from recent CBO reports (CBO takes transparency seriously), while others are based on my own experiences at CBO.

Here’s the paper’s conclusion:

CBO cost estimates will play a central role in the ongoing debate about health policy. This is appropriate, given the potential cost of some proposals and the overwhelming budget challenges that we face.

It is important to remember, however, that the cost estimates cannot speak for themselves. There is a natural tendency to focus solely on the bottom line–estimated costs added up over the next 10 years–but by itself, a cumulative 10-year cost says little about the merits of particular health policies. One can easily imagine good policies and bad policies that have the same 10-year cost.

Nor do cumulative cost figures say much about the long-run budget impacts of particular policies. Those depend on the long-run trajectory of costs and potential offsets, not just on the impacts in the first 10 years.

To get a handle on those critical issues, policymakers, analysts, and journalists need to dig into the cost estimates, examine their details, understand the limitations of the congressional scoring process, and make good use of all the additional information that the CBO can and does provide.

Thanks to Stuart Butler and Bill Beach for inviting me to write the paper.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

Visit: Donald Marron

2 Comments on CBO, Health, and the Budget

  1. We keep hearing about the costs of a new program…what are the comparative costs of doing nothing? Why is it that we hear nothing about the costs of futile care? Most of our health care $ are spent at the end of life…on futile care because we as americans “want everything done”. That everything is costing millions and locking out those people who need surgery or a hospital bed. You will have to die to get in. Why aren’t people talking about this? I am an ICU RN for 25 years…lack of beds are at a fever pitch. I take care of mostly dying people. Some great saves…but millions(yes we count it up sometimes)of $ are wasted. Everyone worries about being “denied” care…you should take a walk in my shoes.

    • Everybody wants to go to heaven, but nobody wants to die.

      We want everything done, and we want it all for Walmart-level prices. It’s ridiculous. I’m not a nurse like you, but I work in a large hospital, and I see it all the time.

      While most other countries have a pyramid-shaped cost structure where they pay for everyone’s basic and preventative care first and then tackle secondary care and advanced procedures later, we have this crazy upside-down pyramid where we’re paying first for all the most expensive procedures on the relatively few and try to work our way up from there. The money runs out, and it runs out with so few people getting good primary care and wellness.

      And you couldn’t more right about the costs of doing nothing:
      The problem boils down journalism being a business in this country and not a public service. Unfortunately, details about what healthcare costs will do the federal budget in 20-30 years does not sell as many newspapers (or get as many ratings) as the face-to-face horse race of Democrats vs. Republicans on whatever’s going on.

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