Opinion

CBO’s Fuzzy Projections on Health Care Programs Could Cost Taxpayers Billions

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Posted: Feb 22, 2018 12:01 AM
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CBO’s Fuzzy Projections on Health Care Programs Could Cost Taxpayers Billions

The Congressional Budget Office (CBO) may be unfamiliar to many Americans, but inside the Beltway, its fiscal forecasts are often taken as gospel. Unfortunately, CBO’s prophecies have sometimes been spectacularly wrong when it comes to trying to predict how federal health policy will shake out. The latest study from the National Taxpayers Union Foundation is yet another example: CBO has been using fuzzy math to understate the cost of Medicare by as much as $45 billion.

In relation to the Center for Medicare and Medicaid Innovation (CMMI), CBO is simply assuming savings where there may not be any. CMMI was created by the Affordable Care Act to experiment with “payment and service delivery models to reduce program expenditures.” It was given a massive $10 billion infusion of taxpayer cash (not subject to annual Congressional appropriations) to create “demonstration projects” that would supposedly revolutionize the way Medicare and Medicaid spent money. 

When making cost or savings estimates for a given program, CBO has to make certain assumptions; usually though, those assumptions are based on past data, observable trends, or logical progressions. But as Doug Badger, the author of the Foundation’s study points out, when evaluating CMMI’s processes CBO has departed from those best practices. For example, the agency’s Deputy Director Mark Hadley testified that “the savings that CBO expects to result from the center’s activities, stem largely from the judgment that successful demonstrations will be expanded and achieve savings” – a circular statement if there ever was one. CBO estimates for CMMI do not take into account costs on a project-to-project basis; instead it analyzed the CMMI process as a whole and relies purely on faith that it will work as expected.

Additionally, CBO is unable to account for any projected savings that should have resulted from the CMMI. The underlying theory with CBO’s calculations is that the more Medicare spends, the more the CMMI should save, due to CMMI’s savings being set at a fixed percentage of Medicare outlays. This means that as Medicare costs rise annually the savings for CMMI should rise at the same rate, but according to Director Hadley, those savings may never be observable. Yet, this didn’t stop CBO from inventing its own version of the infamous “magic asterisk” that policymakers used to explain away budget assumptions that weren’t workable – it simply believes that year in and year out, CMMI will somehow yield savings equal to 0.1 percent of Medicare expenditures.

CBO’s assumptions are also contradicted by recent Trump Administration actions. Last year Health and Human Services official Seema Verma outlined a new direction for CMMI in a Wall Street Journal op-ed. The shift Verma announced, to patient-focused rather than government-dictated practices at CMMI, is a welcome step for transparency and information sharing, and was accompanied by terminations of several compulsory CMMI demonstration projects. Both these steps further refuted a key thesis behind CBO’s estimates – namely, that every single successful demonstration would be expanded, and that patients would continue to be dragooned into participating in government-driven experiments. 

Why should arcane details over CBO’s methods matter so much? Besides misleading taxpayers into believing CMMI is a successful cost-cutting tool, the flawed projection leads to the most ironic result: Congressional legislation that might restructure CMMI and deliver real savings based on proven successes is “scored” as a spending increase, compared to a “budget baseline” CBO conjured up for CMMI on the flimsiest of justifications.

Critics have warned that Verma’s new direction for CMMI is a risky gamble that could hurt efforts to control health care costs, but as the Foundation’s study shows, CBO has been rolling the dice on this Obama-era program ever since it was initiated. Taxpayers should demand fuller, timelier transparency on demonstration project designs as well as results, and other guardrails to ensure that experimental initiatives don’t become back-door attempts to impose controversial policies on the entire health care system. Additionally, NTUF outlines a few recommendations in its study, including Congress revisiting CMMI’s structure and authority, CBO rethinking its assumptions about CMMI, and the Office of Management and Budget conducting its own assessment of CMMI’s budgetary impact. It is more important now than ever before that policymakers have realistic, analytically-grounded information on which to base future decisions.

It is ironic for some to imply that an institution portrayed as a hub for changing the fiscal dynamics of health care should, in itself, be immune from change. More than five years after CMMI began, taxpayers deserve the benefit of a full check-up on the agency – and, a detailed review of CBO’s practices to boot.  

Pete Sepp is president of the National Taxpayers Union Foundation, a nonpartisan research and educational organization dedicated to showing Americans how taxes, government spending, and regulations affect them.