Costs and Savings of Health Policy Changes Not Easily Estimated

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The Congressional Budget Office (CBO), which analyzes the impact that pending legislation will have on the budget if passed, has a history of underestimating the savings and overestimating the costs of health care policy changes says Jon Gabel of the National Opinion Research Center of the University of Chicago in a New York Times op-ed:

As health care reform makes its way through Congress, the budget office’s assessment of how much various elements might cost may determine the details of legislation, and whether it ultimately passes. But when it comes to forecasting the costs of reform, the budget office’s record is suspect.

Gabel uses research from the Commonwealth Fund to compare CBO estimates of the costs and savings projections for health policy changes over the past 30 years to actual costs and savings. What he found was that the cautiously conservative estimation methods used by the CBO have been consistently off when it comes to major health policy changes:

The Congressional Budget Office’s consistent forecasting errors arose not from any partisan bias, but from its methods of projection. In analyzing initiatives meant to save money, it helps to be able to refer to similar initiatives in the past that saved money. When there aren’t enough good historical examples to go by, the estimated savings based on past experience is essentially considered to be unknown. Too often, “unknown” becomes zero — even though zero is not a logical estimate.

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The budget office’s cautious methods may have unintended consequences in the current health care reform effort. By underestimating the savings that can come from improved Medicare payment procedures and other cost-control initiatives, the budget office leads Congress to think that politically unpopular cost-cutting initiatives will have, at best, only modest effects.

The CBO's track record of overly conservative savings estimates on health policy changes is important to keep in mind when articles such as this one in the Washington Post crop up.