The Corner

‘A Gap in Our Toolkit’

Conservative health-care wonks have long complained that the methodology used by the Congressional Budget Office to model our health-care system leaves out the effects of structural reforms on the behavior of both doctors and patients, and so fails to account both for the ill effects of centralized price controls (like the ones Obamacare would impose) and for the beneficial effects of competition among insurers and providers (of the sort the House Republican Medicare reform proposal would make possible). At a hearing of the House Budget Committee today, CBO director Douglas Elmendorf went further that we’ve seen the CBO go before to confirm and agree with that criticism. First there was this exchange with committee chairman Paul Ryan, regarding the effects of Obamacare’s “reforms” on the quality of care:

Ryan: Do your projections assume providers will accept Medicare patients at the same rate now under the traditional program? Because let’s remember, Medicare already pays providers 80 percent of what they will receive in the private market. By 2030 [under Obamacare], this will fall to about 40 percent. Do your projections assume providers will continue to accept Medicare patients at the same rate they do now under the traditional program and does your analysis assume – despite the additional provider cuts coming in current law – that this will have no effect on the quality or access of care?


Elmendorf: The way I would put it Mr. Chairman, is we don’t model the behavior of physicians. We don’t model the access to care or quality of care.


Ryan: So you assume it stays on as is?


Elmendorf: That is the point we noted in the letter analyzing your proposal. That is a gap in our tool kit and a gap we are trying to fill. But under the current circumstances, we don’t model either on the regular base line projections or in our analysis of last year’s health legislation or your proposal, the effects that might happen under current law or alternatives.


Ryan: Therein lies the issue here. Your analysis effective assumes that no matter how much the government pays providers for health care services, providers will continue to provide the same quality care and access. That is the gap you talk about.

Then Elmendorf and Ryan had this exchange about the CBO’s scoring of the Republican approach:

Ryan: When analyzing projected costs under the House-passed budget, did you take into account the effect choice and competition would have on the growth rate of health care costs and do you assume people will continue to utilize health services at the same rate as they do now? Meaning, what I got out of what you just said is that you’re not really gleaning those kinds of lessons from the experience we have from the Part D results.


Elmendorf: We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal. And again, we don’t have the tools, the analysis we would need to do a quantitative evaluation of the importance of those factors.

What we have here, in other words, is a frank admission by CBO that their methodology ignores the effects of policy changes on the behavior of both providers and consumers—effects which must, of course, be essential to the consequences of any health-care reform.


This methodological “gap” strongly favors the left in the health-care debate, because it assumes that the economics of health care are just a matter of manipulating levels of spending, and so that crude price controls will not affect access and quality and that market competition will not reduce costs. There is, of course, ample evidence of the former effect (especially in Medicaid, which in most states pays doctors at even lower rates than Medicare, at least for now), and there is some evidence of the latter too (though market forces haven’t had much of a chance to be tried, except in the Medicare prescription-drug benefit; other experiments (like Medicare advantage) all take place in the shadow of the existing fee-for-service Medicare system and so can’t really change the behavior of providers—they therefore have neither traditional Medicare’s ability to boss doctors around nor a market system’s ability to keep costs down, so they end costing no less than traditional Medicare, and sometimes even a little more.) The actuary of the Medicare program does try to account for both effects in his work, and so has offered some very dire warnings about the effect of Obamacare on the ability of Medicare patients to find a doctor, and has had some nice things to say about the Ryan approach. But CBO at this point ignores both effects. Elmendorf says they are working to change that—let’s hope they do, and fast.

Yuval Levin is the director of social, cultural, and constitutional studies at the American Enterprise Institute and the editor of National Affairs.


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