History of off-target government estimates on healthcare should give pause

Congress is working on a historic task: attempting to roll back and reform a major entitlement program, something that hasn’t been accomplished for over 20 years. But, the current effort to repeal and replace the Affordable Care Act (ACA) is far more complex, and involves a larger share of the budget than the ‘96 law that overhauled the welfare system. The fate of the Republicans’ plan, the American Health Care Act (AHCA), may well hinge on the analysis produced by a government agency that many people outside of the Beltway have never heard of before: the Congressional Budget Office (CBO).

CBO, which has been tasked with providing analysis to Congress on the budgetary and economic impact of proposed laws, projects that under the AHCA, the number of uninsured would climb to 14 million in 2018 due to the repeal of the individual mandate. Some would choose not to purchase health insurance; others would be dissuaded by higher premiums (because, without the individual mandate, CBO foresees fewer healthy people purchasing insurance). It should be noted that many individuals, in this portion of the insured population at least, are not “losing” their coverage – rather, they would be deciding to forego insurance that they are now compelled to purchase.

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After 2018, CBO predicts that uninsured rates will increase because of reforms to ObamaCare’s Medicaid expansion. The AHCA would put the program on a budget, encourage innovation, and shift power to the states. CBO foresees Medicaid enrollment will drop because some states would discontinue their current expansion of eligibility, other states that had been considering expanding eligibility will decide against it, and because of a significant reform to cap the cost per-enrollee.

It is unclear to what degree states would continue Medicaid expansion eligibility regardless of the AHCA, especially given that enrollment rates have exceeded CBO’s projections by more than half, and over time states would have to bear a larger share of the cost. Under ACA, states that expanded eligibility received a 100 percent match to cover new signups, but eventually the matching rate will decrease.

Perhaps most notably, CBO acknowledges that it did not have time to quantify and incorporate macroeconomic feedback into its estimate. The repeal of the ACA will significantly reduce or eliminate dozens of taxes, many of which are having an adverse impact on economic growth and consumer health care costs. A dynamic analysis accounting for this would be expected to increase enrollment figures as individuals gain coverage through employment, or find it more affordable to purchase insurance in the marketplace.

As CBO’s coverage estimates are making media headlines, lawmakers – and taxpayers – are well advised to consider the uncertainty of the estimates, which CBO itself acknowledges on page 3 of its report. Although CBO often provides accurate assessments, its data ought to be evaluated and put into perspective. There are a number of examples – including scores of farm bills, liabilities in federal student loans, and air traffic control reform – where CBO has been criticized for providing a distorted picture of federal fiscal policies. A number of its most crucial and problematic analyses have been in the area of health care policy.

Its analysis of the ACA provides several instances of CBO’s shortcomings, prominent among them mis-projected enrollments. Signups through the exchanges lagged expectations because the individual mandate’s “tax-penalty” had less of an impact than anticipated. The actual number of Medicaid enrollees turned out to be 50 percent higher than CBO projected, thus driving up the budgetary impact by as much as 62 percent in 2015. In addition, CBO’s estimates of $102 billion in “savings” from a long-term care program included in the ACA helped ease passage of the law by contributing to deficit reduction. But the Department of Health and Human Services soon realized that it would be unsustainable and scrapped implementation.

Forecasting the budgetary and economic impact of sweeping legislation like the ACA or the AHCA is no easy task. And, as part of this repeal and replace effort, Congress and the Trump administration will be proposing and implementing additional healthcare reforms that are outside the scope of the legislation CBO reviewed.

Recent history shows that scorekeeping orthodoxies get in the way of providing complete and realistic scenarios of possible outcomes. Once again taxpayers are reminded that CBO is regarded in the media and among many in Congress as a final arbiter, even when that final arbiter expresses caution over its own findings.

The Shadow Open Market Committee (SOMC) provides an example of a reform that could bring balance and accountability to the CBO. In the 1970s, a group of economists concerned with inflation created the SOMC to provide alternative monetary policy recommendations on official Federal Reserve actions. A similar structure outside of government, staffed by budget experts, could give constructive guidance about CBO’s methods. By prompting change at CBO in a way the SOMC did with the Fed, NTUF’s proposed accountability initiative can improve the basis of fiscal policy debates.

NTUF’s Issue Brief #169, Shaky Ground: Congressional Budget Office Estimates of Major Health Care Reforms is available at ntu.org/cbo.

Brady is the Director of Research for the National Taxpayers Union Foundation.


The views expressed by this author are their own and are not the views of The Hill.