Worrying About the Long Run Fiscal Picture: DeLong Smackdown Watch (Conference Call Version)
The Straphangers Pay the Dividends!

Jonathan Cohn on the Congressional Budget Office and Health Care Reform

Jonathan Cohb:

Does House Bill Deal With Costs? Yes. No. Maybe: The CBO, again, makes projections based on fairly conservative assumptions about the impact of efficiency changes to health care. In effect, it assumes the worst. As far it's concerned, there are really only a handful of ways to substantially reduce costs--that is, to bend the cost curve down--over the long run. You can cap or eliminate the tax exclusion, which CBO believes will drastically alter incentives and put downward pressure on costs You can create sort of automatic budget mechanism that reduces spending levels if savings don't materialize over time. (The 1993-94 Clinton health care plan had something like this.) You can also take payment policy out of the hands of Congress and put it in the hands of an independent authority.... The House bill has none of these things.  Ergo, CBO Director Doug Elmendorf on Thursday said it would not contain costs. His testimony was widely seen as an effort to put the tax exclusion back on the table, since it's a CBO favorite. I think that reading was accurate--and I think that's why he was so definitive.

Other experts, however, think the CBO is way too pessimistic on this. The most famous is David Cutler, who argues you don't need those three tools to get big savings. He says that a combination of other changes--including better information technology, comparative effectiveness research, bundling of hospital payments, and moving towards integrated care--can do the trick. If Cutler is right, then something like the House bill--with maybe a few more bells and whistles--will indeed reduce costs significantly over the long term.

One thing to keep in mind: There's a vast middle ground between doing nothing about long-term costs and bringing long-term costs "under control." It's entirely possible the House bill, or something like it, will make progress on bending the cost curve--just not as much as some of us would like. If it did that while simultaneously making insurance coverage available to all and making the system more efficient, that'd still be a pretty big accomplishment...

The problem, I think, is that the CBO has a category for cost control but no category for getting system incentives right. It is a budget office, after all, not a philosopher-king office. The problem, however, is that it is the only arbiter out there. And there appear to be a lot of members of congress who think controlling costs = getting system incentives right.

I don't think we should care much about costs: it might be in the future we want to spend a lot on health; it might be that in the future we develop magic treatments and so want to spend a lot less. If we get the system incentives right, then whatever we spend on health will turn out to be the right thing to do.