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AAOS Now

Published 7/1/2014
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Mary Ann Porucznik

What Does the CBO Do?

Scoring legislative proposals is key to their passage

During the debates on repealing and replacing the sustainable growth rate (SGR) formula for Medicare physician payments, one set of numbers got a lot of media attention. That was the Congressional Budget Office (CBO) estimate of how much the legislation would cost. For example, in February 2014, the CBO estimated that S. 2000, the SGR Repeal and Medicare Provider Payment Modernization Act of 2014, would increase direct spending by about $138 billion during the period 2014–2024. As a result, Congress had to find a way to offset or save that much money before it could vote on the measure.

During the National Orthopaedic Leadership Conference (NOLC), Marc Goldwein described the role that the CBO plays in the legislative process. Mr. Goldwein is senior policy director of the Committee for a Responsible Federal Budget, a bipartisan, nonprofit organization committed to educating the public about issues that have significant fiscal policy impact.

“Medicare and Medicaid are the fastest growing parts of the budget due to aging and the growth in healthcare costs,” explained Mr. Goldwein. He also noted that any action taken by Congress to reduce healthcare spending would have an impact not only on the budget but also on society.

Among the methods he cited as ways to reduce healthcare spending were the following:

  • reducing or modifying payments to Medicare providers
  • increasing premiums, deductibles, or copays for Medicare beneficiaries
  • reducing payments to states for Medicaid
  • reducing subsidies within the Affordable Care Act
  • enacting reforms to promote less or more efficient delivery and use of health care

The CBO is key in estimating the impact of these proposals as part of the legislative process. For example, in addition to estimating the president’s budget, the CBO also provides budget “options” with savings estimates, produces informal private estimates for members of Congress, their staffs, and the committees, formally scores legislation, and determines whether the legislation is “PAYGO-compliant” under the Budget Control Act.

Finances, however, are only one part of the CBO’s mandate. It also examines the direct, “static” effects of a policy as well as the indirect, behavioral effects on beneficiaries, insurers, providers, businesses, and state and local governments. Plus, it takes into account interactions among various programs.

In the case of a change in physician payments, these interactions may include impact on Medicare premiums, Medicare Advantage plans, the Independent Payment Advisory Board, Medicaid, Social Security, other government programs, and the tax code. However, noted Mr. Goldwein, estimates do not include possible effects on inflation, the nation’s gross domestic product, or other macro variables.

Scoring policy changes
CBO estimates changes relative to a baseline, explained Mr. Goldwein, which is constructed based on the following factors, among others:

  • economic estimates
  • extrapolation of trends
  • demographic projections
  • excess cost growth projections
  • incorporation of future or continued changes as a result of current law

It is important to note, he said, that CBO estimates the impact of policies relative to current law, meaning it assumes no future legislative changes at the federal level.

Mr. Goldwein pointed out that CBO uses various models—including cell-based spreadsheet models, regression models, microsimulation models, health insurance simulation models, and long-term models—to develop its estimates. It may also combine two or more of these models.

However, CBO also recognizes that economic or financial factors are not the only ones that drive change and costs. The behavioral responses of people affected by a policy change are also important. As a result, it attempts to estimate the impact of behavioral responses by individuals, employers, healthcare providers, insurers, state and local governments, and others, as well as the effects of behavioral changes on people’s health.

For example, the agency’s estimates include changes in the likelihood that people will take advantage of certain government benefits when policies pertaining to those benefits are changed and changes in the quantity of healthcare services that are provided when Medicare’s payment rates to providers are changed.

Original research
Rather than focus on the extremes (positive or negative) of a policy change, noted Mr. Goldwein, CBO aims to estimate the middle of the distribution of possible outcomes. Its estimates are based on historical state and federal data, administrative records, survey data, data from outside entities, and third-party research. It also solicits and receives input from think tanks, research organizations, government agencies, private sector organizations/associations, academic experts, and a panel of health advisers.

Mr. Goldwein provided an example of CBO’s original research on the effects on hospital admissions of 34 different disease management and care coordination programs, indicating which had the impacts, both positive and negative. He also provided an example of a CBO logic chart for budget estimating.

Finally, he addressed the differences between the CBO and the federal Office of Management and Budget (OMB). Although both prepare budget estimates, the OMB is part of the executive branch of government, while the CBO is an independent agency. Frequently, the OMB and CBO use different assumptions in their estimates, leading to divergent views on the impact of a particular policy.

Mary Ann Porucznik is managing editor, AAOS Now. She can be reached at porucznik@aaos.org

Additional Information:

Graphic: Logic chart used by the CBO for budget estimating