CBO Director Elmendorf Calls “Bending the Cost Curve” a Meaningless Evaluation

Several months ago, CBO Director Doug Elmendorf and Sen. Kent Conrad (D-ND) created a huge media hoopla when Conrad got Elmendorf to claim that the House health care bill would not “bend the cost curve.” Fast forward a few months, and Elmendorf has now taken a far more philosophical look at what “bend the cost” curve even means.

This is probably not what the Blue Dogs were hoping for when they sent a letter to the CBO asking the CBO to analyze things that they are simply not designed to study. I guess the Blue Dogs will now need to look elsewhere to for a reason to oppose reform. Claiming it is for “fiscally conservative” reasons will just not cut it. They killed the robust public option, even though it would save $85 billion, and now, for the most part, they remain uncommitted to voting for a bill that will reduce the deficit by over a $100 billion in the next ten years. Elmendorf's letter reads, in part (PDF):
“Bending the Curve”
The question often arises: How does CBO evaluate whether health care reform proposals “bend the curve”? But that question raises another one: Which curve? Several cost trends are of interest to policymakers, and even though they are related, proposals might not have the same effects on each one. One such curve is the federal budget deficit as a whole, and another is the federal budgetary commitment to health care. A third is the trajectory of national health expenditures (NHE), and a fourth might be the premiums charged for health insurance.

Moreover, what does it mean to “bend the curve”? If a proposal makes the expected budget deficit 20 years from now smaller than it is expected to be without any policy changes, then the deficit curve is clearly being bent downward, on average, during the next 20 years; that is, the average growth rate of the deficit during those two decades would be lower. On the other hand, if the expected deficit is larger, then the deficit curve is being bent upward, and the average growth rate of the deficit in that period would be higher. Would that slower or faster growth rate continue indefinitely? That sort of extrapolation might seem natural, but it may not be appropriate. Distinguishing between a series of shifts in the level of the deficit and permanent changes in the growth rate of the deficit is difficult. Although CBO can provide a rough indication of a proposal’s effect on the level of the budget deficit 20 years ahead, the agency does not have an analytic basis for projecting the proposal’s effect on the growth rate of the deficit at that point, much less for evaluating whether that growth rate will continue in future years. Those same considerations apply to the agency’s analysis of the federal budgetary commitment to health care. Therefore, CBO has concluded that it is more appropriate to talk about whether proposals would “lower” or “raise” the curve of the federal budget deficit or budgetary commitment to health care 10 to 20 years from now than to discuss those proposals’ effects on the shape of the curve in that time period or the level or slope of the curve beyond that period.

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