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How Accurate Is The CBO’s 75-Year Cost Projection?

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"How Accurate Is The CBO’s 75-Year Cost Projection?"

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The Congressional Budget Office released two separate 75-year spending projections this morning. One estimated what would happen under current law; the other predicted what the deficit would look like if Congress patched the doc fix, ignored the cost controls in the health care law and extended the Bush tax cuts:

cbo75yr

The cynic in me believes that the bottom graph is probably more accurate than the top graph , but even that does not take into account all the possible changes — at least when it comes to the health care law. The problem is that CBO doesn’t score things like prevention and payment reform and relies on a narrow spectrum of evidence to estimate the costs and savings. This kind of math has gotten the agency in trouble before. For instance, CBO has consistently underestimated the savings from Medicare hospital payments in the early 1980s, (which ended up saving more in just one year than CBO predicted for three years) and the Medicare Part D legislation. In this report, it notes that “A wide range of changes could occur—in people’s health, in the sources and extent of their insurance coverage, and in the delivery of medical care—that are almost impossible to predict but that could have a significant effect on federal health care spending, both under the legislation and under prior law.”

Indeed, there is a whole body of research that quantifies the savings from the provisions that the CBO largely ignores. In May, the Commonwealth Fund and the Center for American Progress Action Fund released a study that relied on business literature about the inefficiency in the health care sector, experiences of health practitioners, and the real world experiences of Geisinger Health System, Health Partners, Denver Health and others and estimated higher savings from modernization and payment reform. As a result, they found that the annual growth rate in national health expenditures falls from 6.3 percent absent reform to 5.7 percent under the health law. Similarly, the administration’s Council of Economic Advisers also released a report last year which found that health reform would reduce health care spending by 1 “percentage point over an extended horizon.”

The point of this is to say that the 75-year estimate is a rough guesstimate that’s based on a very specific and narrow interpretation of data. It should be seen as such.

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