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Relax…OMB and CBO (Peter and Doug) Aren’t Really Feuding

July 29th, 2009 . by economistmom

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Stan Collender of the Capital Gains and Games blog calls it “as close as you get to a knife fight among federal budgeteers”–and Stephen Spruiell of the National Review claimed Peter’s blog post was an “outburst” that “was the equivalent of a player upending the chess board and calling his opponent a cheater.”  Both are exaggerating.  Federal budget policy hasn’t really gotten that much more exciting lately, and OMB director Peter Orszag and CBO director Doug Elmendorf are long-time colleagues who like and respect each other.

Here is what Peter’s blog post actually said, taking it in more proper (fuller) context (emphasis added):

This morning, the Congressional Budget Office (CBO) analyzed proposals to shift more decision-making out of politics and toward a body like the Independent Medicare Advisory Council (IMAC) put forward by the Administration.  CBO noted that this type of approach could lead to significant long-term savings in federal spending on health care…

In part because legislation under consideration already includes substantial savings in Medicare over the next decade, CBO found modest additional medium-term savings from this proposal — $2 billion over 10 years…

With regard to the long-term impact, CBO suggested that the proposal, with several specific tweaks that would strengthen its operations, could generate significant savings

The bottom line is that it is very rare for CBO to conclude that a specific legislative proposal would generate significant long-term savings so it is noteworthy that, with some modifications, CBO reached such a conclusion with regard to the IMAC concept.

A final note is worth underscoring. As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today’s analysis from CBO could feed that perception. For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could “eventually achieve annual savings equal to several percent of Medicare spending…[which] would amount to tens of billions of dollars per year after 2019.” Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals.  In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped.

Note that for CBO to suggest that a proposal has the potential to (”could”) save “tens of billions of dollars” per year is not at all equivalent to CBO providing a quantitative “scoring” of the outyear (after-2019) effects of the proposal.  That evaluation (”tens of billions”) is pretty darn fuzzy (what analysts might call an “order of magnitude” prediction) and seems much more qualitative than quantitative.  CBO does longer-term “analysis” all the time to help guide the development of major fiscal policy initiatives; the organization does not do longer-term (beyond 10-year) cost estimates of specific legislation.  CBO has explained that in the health reform debate, an important goal of the Administration has been to “bend the health cost curve”…down.  Because most of this “bending” is expected to occur after the first ten years, part of what CBO is attempting to do in their analyses of health reform proposals is to determine, in a mainly qualitative manner, whether the curve is in fact likely to be bent down with these proposals.  (Determining whether the slopes of the trajectories are similar or not is an important part of even this mainly-qualitative analysis.)

I honestly think Peter was just disappointed in/felt “stung” by CBO’s quantitative 10-year estimate (for savings of just $2 billion) and felt like getting defensive about it, and in the process he forgot halfway through his blog post that he was actually happy that Doug said that the IMAC concept had the potential to save significantly on health costs beyond the first ten years (and that Doug had even explained specific ways to structure IMAC to make those savings much more certain).

I know people are getting bored because this health reform effort is stalling and it’s almost August recess, but sorry, these guys (Peter and Doug) aren’t the “drama kings” you might be hoping for.

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