C-B-Oh No!

By Jaketapper

Jul 26, 2009 8:35am

This weekend the Congressional Budget Office releaseed a letter about the Obama administration's proposal for an independent Medicare commission that would set pricing and protocols, a letter the Obama administration found both overly skeptical and an overreach, in the latest chapter of its continuing disagreeements with Congress's independent budget-analyzing arm.

CBO director Doug Elmendorf said his team reviewed draft legislation written by the administration to create an Independent Medicare Advisory Council, or IMAC, and estimated such a board would "yield savings of $2 billion over the 2010–2019 period."

Looking beyond that decade, Elmendorf wrote, "CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis."

IMAC would consist of five medical experts – either doctors or those with in medicine or health care policy – appointed by the President andd confirmed by the Senate. Every year IMAC would make recommendations on how much Medicare should pay for various services.

Office of Management and Budget director Peter Orszag yesterday afternoon, writing at the OMB blog, took issue with Elmendorf's analysis, calling IMAC a "game changer."
"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," wrote Orszag, the former CBO director. "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."

As an example, Orszag writes that "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."

CBO's Elmendorf supplied reasons for the relatively skeptical take on cost savings IMAC would create: its five-year start-up period; that the IMAC proposal "does not explicitly direct" members to reduce Medicare "expenditures nor does it establish any target for such reductions"; that "the composition of the council could be weighted toward medical providers who might not be inclined to recommend cuts in payments to providers or significant changes to the delivery system."

The CBO letter allowed that "savings might not be realized at all because the proposal specifies a process without specific goals for savings or a 'fall-back' plan for ensuring spending reductions if the combination of annual IMAC recommendations and Presidential approval does not produce hoped-for savings. …On the other hand, there is a small chance, in CBO’s judgment, that the council would propose and the President would approve significant changes to Medicare that would reap substantial savings."

- jpt

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