CBO and IMAC

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 and that the available evidence implies that a substantial share of spending on health care contributes little, if anything, to the overall health of the nation.  This supports what President Obama has said all along: we can reduce waste and unnecessary spending without reducing quality of care and benefits.

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.  The point of the proposal, however, was never to generate savings over the next decade.  (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.)  Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term.  In other words, in the terminology of our belt-and-suspenders approach to a fiscally responsible health reform, the IMAC is a game changer not a scoreable offset.
 
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 potential modifications included items such as providing mandatory funding for the council, rather than having the council rely on the annual appropriations cycle, and requiring independent verification of the expected reductions in program spending rather than relying only on the Medicare actuaries for such verification, along with other suggestions, such as including an across-the-board reduction in payments as a fallback mechanism if the council did not produce proposals that generated adequate savings.)   And if you look back at recent history, one can see why an empowered advisory council would be useful. For example, for the better part of this decade, MedPAC has recommended reducing overpayments to insurance companies for Medicare Advantage plans – to equate those payments with the cost of covering the same beneficiary under traditional Medicare. Yet, nothing happened, costing taxpayers tens of billions of dollars.  We can’t afford that type of inertia.
 
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.