Obamacare

The CBO's Crystal Ball

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A big part of the debate about whether the health care law will reduce the deficit comes down to an extremely simplified argument about whether the Congressional Budget Office is right or wrong. Problem is, no one knows right now. The CBO puts out projections about the budgetary effects of legislation if certain assumptions hold. As numerous CBO directors have made clear in the past, it's almost certain that the scores, which rely on complex economic modeling and educated judgment calls about a web of interlocking market effects, will prove mistaken somehow or another. The question is how close they'll get.

I see…I see…deficit reduction! Maybe!

In other words, it's important to take those estimates with a grain of salt. And that's especially true when it comes to health care scoring. As Washington Post editorial writer Ruth Marcus explains, the health care estimates are some of the most complex—and therefore least certain—that the congressional scorekeeper produces:

Of all the cost estimates that the CBO produces, the most complex and least reliable involve health care. This is in no way a criticism of CBO. No matter how sophisticated the economic model, the multi-layered assumptions about the future cost of health spending make the $230 billion projection closer to an educated guess (albeit a guess made by very educated economists) than a take-it-to-the-bank certainty.

And even if the CBO forecasts were guaranteed to come true, there is the political calculus to consider. CBO made this point in its usual, restrained way Thursday, noting that "current law now includes a number of policies that might be difficult to sustain over a long period of time. If those policies or other key aspects of the original legislation would have been subsequently modified or implemented incompletely, then the budgetary effects of repealing [the health-care law]…could be quite different."

Translated into English: don't bet on that $230 billion. The health-care law will require billions in new spending. It relies on the expectation of billions in savings from slowing the growth of health-care costs and assorted cuts and taxes—all guaranteed to produce howls of outrage, and a burst of lobbying, from the affected interests.

If you want a taste of just how complex and uncertain health care scoring can be, it's worth spending a few minutes going through former CBO director Robert Reischauer's paper going through the details of the scoring process for HillaryCare. I summarized some of that process in an article on the CBO last year:

During the last major push for health care reform, under President Bill Clinton in 1994, the CBO drew up a model of the existing system, extended that model into the future, and calculated how the future would change under the proposed legislation. In doing so, the agency made scores of estimates and assumptions, both about the state of the existing system and how millions of individuals might react to the proposed changes.

In order to determine how much the bill would cost, it had to account for dozens upon dozens of variables, including how many people had health insurance and how many didn't, how many people with insurance got it through an employer, what types of plans those people had, the total amounts of their premiums, the percentages of the premiums the employers paid, the coverage and cost-sharing requirements of those plans, whether or not uninsured individuals had options to obtain insurance and what those options might be, the health of the insured, the frequency and type of care used by the insured, the nature and size of the companies providing insurance for their workers and the business reasons that led them to do so, regional breakdowns of health care use patterns, how new treatments and new medical technologies would change medical practices and costs, the impact of hospital consolidations and other developments in the business of medicine, how enforceable and effective new cost controls would be, and what choices patients would make with regard to doctors, medicines, and treatments under the proposed legislation.

To build their working model, CBO analysts worked with data pieced "together from several inadequate or dated surveys and sources," according to a 1995 article in the journal Health Affairs by Robert Reischauer and Linda T. Billheimer, the CBO's director and deputy assistant director, respectively, during the 1994 debate. Surveys and census data were used to the greatest extent possible, but by and large the necessary information simply did not exist. So the analysts did what they could, and what they still do today: They guessed.

CBO analysts probably have more data available now than they did in 1994, but the health care market is also more fragmented and more complex. So when the CBO models these markets, there are inevitably gaps in what its analysts know. That means making guesses: Not wild, uninformed, random guesses, but educated guesses by well-informed experts who nonetheless don't always have an ideal set of measurements and data at their disposal. As with any attempt to predict the future, legislative scoring is an inherently uncertain process, and that uncertainty increases with the complexity of the legislation at hand. Washington would be better off if more people understood this.

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  1. All real libertarians need to wake up and admit that health-care is a natural right… indeed our nation as a signatory to the Universal Declaration on Human Rights (Article 25) must promote a “standard of living adequate for the health and well-being” of families in this country.

    Moreover, our current system amounts corporate welfare, and ObamaCare is the apotheosis of that, requiring businesses and individuals to invest in these rip-off rackets with 80% payouts.

    The fiscally prudent path is to turn to single-payer insurance and accept health-care as a human right.

    1. Health-care is a natural right.

      Health insurance is not.

      Or do you think the 1st amendment requires the government to buy me a media outlet so that I can properly express my free speech?

    2. All real libertarians need to wake up and admit that health-care is a natural right… indeed our nation as a signatory to the Universal Declaration on Human Rights (Article 25) must promote a “standard of living adequate for the health and well-being” of families in this country.

      Amazingly, a free market in health care would be the best way to take care of that. No better mechanism exists for reducing costs and improving results, most often at the same time. So to promote a standard of living adequate for the health and well-being of families in this country, the best thing to do would be to immediately implement a plan to reform the health care industry into as free a market as possible.

      1. Seems to work for food, TVs, etc.

      2. If we accept health-care as a right, than we can proceed from that. If you don’t accept it, then we can only talk pragmatic, piece-meal reforms.

        You might, as an efficient-markets theorist (which is actually something to live down these days), suggest that the best approach would be complete laissez-faire competition. However, there are unacceptable externalities, e.g. to maximize profit by excluding undesirable “investments” means the public picks up the bill in a very damaging and unpredictable manner.

        1. The free market serves me quite well in providing me essential needs such as food, clothes, and art. It’s not externalities but excessive intervention that makes the market for health care inefficient.

          1. Well me too (I happen to have a plan that hasn’t implemented pre-existing condition discrimination), but that doesn’t mean the system would be efficient without intervention. The goal of the insurance institutions is to avoid risky investments and extract money from fearful people. The goal of public policy and hopefully the serious Reason readers is to get as many people insured as possible.

            Flood insurers who pull out of Florida makes sense of the organization acting freely. It does NOT make sense for the people of Florida.

            1. You need to let go of the semi-socialized system that we call ‘health insurance’.

              Do you have nutrition insurance, housing insurance, clothing insurance?

              A free market would have consumers paying providers directly on a cash per service basis. Insurance would be a financial instrument protecting the buyer from unexpected large expenses. Not routine care and definitely not as an organization that employed doctors and others that then decided what care you will get.

            2. The goal of public policy and hopefully the serious Reason readers is to get as many people insured as possible.

              Nope. My goal is to let people make decisions like whether and what kind of health insurance to buy on their own, and bear the consequences.

              Fucking freedom, how does it work?

              1. I accept that you hold those Social Darwinist views, just don’t dress it up as a political philosophy. You essentially are an apologist for a country with 3rd World health statistics, with the most wasteful spending in this sector.

                1. Fucking retard.

                2. No, you are an apologist for the wasteful system. AFICT everyone who responded to you wants a MUCH more radical change than you do. You just want more of the same crappy government spending.

                3. Again with your 3rd world health baloney. Name a 3rd world country that has infection rates for pertussis or diphtheria like the USA. Or show someplace in the USA where an amputee kid wears crutches to school.

    3. If healthcare is a natural right, why are you on the internet? If all of your disposable income is not being spent on the healthcare of others, you’re violating their rights, you heartless bastard!

    4. So, by your argument you must also want us to go to single-payer for food production and consumption. After all, food is a necessary part of a standard of living adequate for health and well-being.

    5. “All real libertarians need to wake up and admit that health-care is a natural right…”

      How can one have a natural right that depends on other people’s money to be enforced? My freedom of speech, for example, deson’t require anyone to bear the costs of what I say. Healthcare on the otherhand, if I can not or refuse to pay for it, doesn’t. What’s next? A right to food & loddging at someone else’s expense as well? Throw in an X-box/PS3 and all the games and bandwith I want so I can excercise my rights! Working on the other hand is for suckers.

  2. What’s funny about the liberal defenses of the CBO score is they all blame imperfect knowledge, but one of the core assumptions they make with the legislation is that some regulator will have that knowledge.

  3. Health care is not a natural right. You don’t have a natural right to any goods or services provided by another person.

    1. I disagree!

    2. Thank you – my response exactly to the above nonsense.

      If ‘healthcare’ were a “right”, I could force my doctor to administer care to me, even absent any ability to pay. Or force someone to become a doctor who did not want to be. No one has that right.

      1. Enslaving doctors makes lots of sense if you want cheap healthcare.

  4. That means making guesses: Not wild, uninformed, random guesses, but educated guesses by well-informed experts who nonetheless don’t always have an ideal set of measurements and data at their disposal.

    Peter! This provocative and hateful speech must stop!! Do you want to provoke another “Arizona Rampage?”??? If you do not cease this malevolent and incendiary line of dialogue, Reason will have blood on its hands!

    /MSM

  5. we can only talk pragmatic, piece-meal reforms.

    I have no problem with that. I’m a pragmatic kind of guy.

  6. I could force my doctor to administer care to me, even absent any ability to pay.

    MNG, is that you?

  7. The CBO only scores legislation for a 10 year window.

    Entitlement programs go on forever and always cost more – a LOT more – than predicited. Exhibit A: Medicare.

    It is patently absurd for anyone to beleieve that refraining from implementing an entitlement program will increase the deficit.

  8. Considering how accurate the CBO has been when predicting costs of these welfare systems, I am inclined to believe, using SS as an example, that they are of by orders of magnitude and that this government takeover of healthcare will break the country in a decade or less unless government also abolishes property rights and takes everything over.

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