March 24, 2017

Scoring the CBO on Health Care

Mark J. Warshawsky

Former Senior Research Fellow

The CBO has a difficult job and will inevitably err. Nonetheless, no institution is beyond critical assessment or the need for improvement, especially one that plays such an important role in the development of public policy.

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Recently there has been much criticism of the Congressional Budget Office (CBO) for its assessment of the House Republican bill to repeal and replace Obamacare, known as the American Health Care Act (ACHA). The CBO’s projection that the law would cause 14 million people to lose health insurance by 2018 has drawn particular ire, with critics saying this number is overstated and highly speculative. CBO’s defenders are surely right to argue that Congress and the public need objective analyses provided by independent, nonpartisan agencies. But the time has finally come for an organized and transparent review and assessment of the CBO’s work. 

Let us acknowledge at the outset that the work assigned to the CBO is challenging and difficult, often taking place in a tense and dynamic environment. But that does not mean the CBO is above criticism or could not benefit from an outside assessment of its own work. This is particularly so given the real power the CBO has, both directly and through influencing opinion, on the ultimate outcome of the legislative process. 

The CBO’s analysis of Obamacare (officially the Affordable Care Act, or ACA) and its effect on health-insurance coverage is a case in point. In 2012, the CBO projected that by 2016 about 26 million people would have gained health insurance coverage owing to the ACA, whereas the actual count seems to be coming in at 17 to 20 million. 

The composition of this population’s coverage is also quite different from what the CBO projected. Instead of a majority share from the insurance exchanges, most newly covered are on Medicaid — by some measures almost four-fifths. There is also evidence that some of them were already eligible for Medicaid under prior law. Further, those newly insured on the exchanges are older and sicker than what the CBO originally assumed.

These flaws are significant because the original projections were the foundation for the CBO’s view that the exchanges would be successful and stable, which subsequent experience has proven wrong. The source of these projection errors is no doubt complex, but because of the opacity of the CBO models, it is also unknown to most of us. 

The emphasis by the CBO on insurance coverage in these projections removed attention from another, even more important, measure of policy success. From the beginning, President Obama said the main justification and goal for the ACA was to “bend the cost curve,” that is, to reduce the rate of growth in health-care spending. This was a major political and policy consideration because it meant not only that the newly insured would benefit from the ACA, but that, on net, the majority of the population would as well — including those insured through employers or by existing government programs. It would have been natural for the CBO to assess and measure this key consideration, either in a projection model or through some analysis following the enactment of the law. And yet, they stated at the beginning that they would not do so.

Another case in point is the Community Living Assistance Services and Supports, or CLASS, Act. Part of the ACA in 2010, CLASS would have created a new federally sponsored long-term-care insurance program. And because premiums would have been collected for five years before benefits would have begun to be paid out — and because it was predicted to be a successful and popular program — the CBO projected ample cash flow for the first decade of CLASS.

This program financed nearly one-tenth of the ACA in the original CBO score and was a major reason President Obama could say that the ACA was deficit neutral. In reality, though, the poorly designed CLASS was an unsustainable program from the beginning, as was widely recognized by experts at the time, including a formal analysis by the Medicare actuary. CLASS was cancelled in 2012. 

Given these significant shortcomings in the CBO’s past analyses of critical health policy questions, it is natural for the public to want a better understanding of how CBO does its work and whether it can be improved. An independent and balanced panel of experts from think tanks, accounting and consulting firms, and past CBO employees — with no connection to affected interest groups — should be charged with conducting a thorough review of the CBO’s past work on the ACA and AHCA and issuing a report within six months giving a full history, explanation, and assessment. 

Although the CBO does have a panel of outside health advisors, this group does not seem particularly active, meeting only once a year. Instead, this new assessment group should be set up independently of the CBO, with its own small staff and panel members, mandated and funded though legislation such as the AHCA. 

The CBO has a difficult job and will inevitably err. Nonetheless, no institution is beyond critical assessment or the need for improvement, especially one that plays such an important role in the development of public policy.