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CBO's Problem with Measuring Cost Controls

2:22 PM, Jun 23, 2011 • By MICHAEL WARREN
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At this morning's House Budget Commitee hearing, Douglas Elmendorf admitted that the Congressional Budget Office is ill-equipped to measure the signature cost-cutting measure in Paul Ryan's Medicare reform plan--a government exchange designed to introduce competition into senior health insurance market.

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“We don’t model the behavior of physicians. We don’t model the access to care or the quality of care," said Elmendorf, CBO's director. "That is a gap in our toolkit.”

"Did you take into account the effect that 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?" asked Ryan, the Budget Committee chairman.

"So we're not applying any additional effects of competition on growth rate over time in our analysis of your proposal," Elmendorf replied. "We don't have, again, the tools for the analysis that we would need to do a quantitative evaluation of [that]."

Ryan raised the issue today while discussing the CBO's April analysis of his budget proposal, which passed the House later that month. That analysis claimed that seniors will share a larger burden of their health care costs under the Ryan plan than under Medicare as it operates under the current law. That claim has helped fuel the claim by Democrats that the House GOP budget will "end Medicare as we know it."

But, as Ryan pointed out, there are flaws in any evaluation that assumes the quality of and access to health care for seniors won't drastically decrease if Medicare lowers its reimbursement rates, a likely outcome if the Medicare "trust fund" runs dry within the next decade or so. (The Medicare trustees predict this will happen in 2024, while Elmendorf testified today that CBO believes the date is closer to 2020.)

"Your analysis effectively assumes that no matter how much the government pays providers for health care services, providers will continue to deliver the same quality of care and access," Ryan said to Elmendorf. Furthermore, the fact that CBO is unable to factor in the effect of competition likely means it overestimated the costs in the Ryan plan. Ryan noted that CBO similarly overestimated costs for the Medicare Part D prescription drug program, a system similar to the one Ryan is proposing for Medicare Part A, the program with the most rapidly exploding costs.

Medicare and other government health care programs already use similar systems to control costs. Ryan explained this to John McCormack in April:

Medicare already has exchanges. Medicare prescription drug benefit is an exchange. Medicare supplemental is an exchange. Medicare Advantage is an exchange. So Medicare already operates like this. So we’re not talking radical change about how Medicare operates.

Doing that for the under-65 population—a federal government-run exchange—is radical and is dramatically different from where we are today for the under-65 population—point number one.

Point number two: Medicare is a much more unique population with high health care costs… health problems. The under-65 population is not. … What we want is to have a more vibrant, innovative market for health care for the under-65 population, and that will help produce a better system for the over-65 population.

If you turn the entire health care system into a government-run system, you won’t have the choice, you won’t have competition, you won’t have innovation, and productivity improvements. So the Medicare reforms are very similar to the way Medicare works in many aspects, but doing that to the rest of population would deeply damage the entire health care system and take a lot of freedom away from people who have it right now.

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