What Would a Health Overhaul Cost? All Eyes on the CBO
June 11, 2009
By Lori Montgomery
Douglas W. Elmendorf has toiled for much of his career in the anonymous bowels of the nation's economic superstructure, shuttling among various Washington agencies and the Federal Reserve. So it came as a bit of a shock, friends say, when a powerful senior senator recently felt obliged to inform him that he "is not God."
"You might be Moses," Sen. Max Baucus (D-Mont.) said, "but not God."
Elmendorf has never claimed divine status, but it's not hard to see why some lawmakers think he holds the fate of public policy in his hands. Since he took the helm of the Congressional Budget Office in late January, Elmendorf has delivered a skeptical analysis of a stimulus package intended to rescue the U.S. economy, forecast bigger-than-expected losses from a $700 billion bailout of the U.S. financial system and poured ice water on President Obama's claims that his policies would stabilize the exploding national debt.
Now Elmendorf, 47, faces the toughest task of his brief tenure: attaching a price to a monumental overhaul of the nation's health-care system, which holds out the promise of delivering care to millions of uninsured Americans, cutting costs for an overburdened federal government and sealing the political legacy of a popular new president.
The stakes are enormous. The nonpartisan budget office was created by Congress to serve as Washington's official scorekeeper, offering independent estimates of the cost of legislation. If the CBO says a health plan will break the bank, lawmakers generally will assume it's true.
Baucus, the chairman of the Senate Finance Committee and a key figure in the health debate, has publicly lectured Elmendorf, saying he has a moral duty to be "creative" and deliver the favorable budget estimates "we have to have" to win broad support.
Elmendorf said the CBO would never "adjust our views to make people happy." When a health plan finally emerges, he said, his office will offer an objective analysis, "without regard to the political consequences."
"CBO is not going to make or break health-care reform," Elmendorf said in an interview. "Whether health-care reform happens depends on the judgment of members of Congress. We'll provide information that helps them make that judgment. But the decisions are theirs."
Elmendorf has faced this kind of pressure before. The Harvard-trained economist was part of a team of CBO analysts who in 1994 concluded that President Bill Clinton's plan to overhaul the health system would cost far more than advertised and vastly expand the federal government. The effort soon died, and Robert D. Reischauer, then the CBO director, was accused of delivering the fatal blow.
Elmendorf remembers, as a newcomer to Washington, watching Reischauer engage in those apocalyptic budget battles and thinking that "being director of CBO was the most exciting job I could imagine."
"CBO plays this very special role in the world," Elmendorf said. "It offers an analyst's view about the effects of different policies. And it's untainted by political considerations."
Though Elmendorf was appointed by Democrats and served for three years in the Clinton administration, admirers in both parties said he, too, is largely untainted by politics. The son of a computer programmer from Poughkeepsie, N.Y., Elmendorf attended Princeton and Harvard, where his dissertation advisers included a Democrat -- Lawrence H. Summers, now Obama's top economic adviser -- and two Republicans: Bush adviser Gregory Mankiw and Reagan adviser Martin Feldstein.
After teaching at Harvard, Elmendorf moved to Washington, where he has impressed others with his resistance to the capital's culture of preening self-promotion.
"He's the opposite of a spinner," said Tom Kahn, staff director of the House Budget Committee, which selected Elmendorf.
"He's a very honest guy. And he's going to call it like he sees it," said Mankiw, who honored Elmendorf (and his wife, Federal Reserve economist Karen Dynan) in his economics text with a reference to the mythical economy of "Elmendyn."
The point on which Elmendorf's opinion is most eagerly awaited is whether changes in the delivery of health care -- more prevention, better information, closer coordination among doctors -- can wring some of the waste out of a system expected to consume nearly $2.3 trillion this year. Reformers argue that up to 30 percent of that spending does little to improve health. If it were eliminated, the savings could be used to cover the 46 million Americans who lack insurance.
The problem is that nobody knows exactly how to eliminate that spending. And so far, the CBO has proven unwilling to assume big savings from popular reforms, such as computerizing medical records and studying the comparative effectiveness of various treatments. The CBO has estimated, for example, that requiring doctors and hospitals to use electronic records would save the government only about $34 billion over the next decade -- a small fraction of the overall cost of reform, which is expected to exceed $1 trillion.
Haunted by the memory of 1994, health advocates are nervously bombarding the CBO with fresh data in hopes that the agency will refine its views. Lawmakers have asked the CBO to report by early next week on reform's potential to wipe out massive deficits forecast for the federal health programs Medicare and Medicaid.
"Everyone is waiting to see what the savings are," said Kenneth E. Thorpe, chairman of the Department of Health Policy and Management at Emory University, who champions the cost-saving potential of disease prevention. "If CBO doesn't provide the types of savings people are anticipating, you only have three choices [for proceeding with legislation]: Scale it back, slow it down or you have to raise more money."
While the CBO has a sterling reputation for providing honest assessments, it has been a frequent target of partisan pressure. Former director June E. O'Neill remembers being summoned repeatedly to the Capitol by then-House Speaker Newt Gingrich (R-Ga.), who "let it be known" that she might be fired because her economic forecasts were insufficiently rosy. And former CBO director Douglas J. Holtz-Eakin came under fire for the massive price he attached to a new prescription-drug benefit for Medicare recipients.
The agency's unofficial mascot is a skunk, a furry toy passed from director to director as a reminder to deliver the truth, even when it is as welcome as a skunk at a picnic.
But forecasting the truth can be tricky. O'Neill concedes that her economic forecasts were too conservative -- there was no way to predict the dot-com boom of the late 1990s. And Holtz-Eakin's score for the drug program was too high: The program has been more popular and less costly than anyone imagined, and the CBO recently lowered its 10-year estimate from $634 billion to $395 billion.
Elmendorf acknowledged that health reform is especially challenging. The CBO is much better at measuring incremental changes than measuring fundamental reforms, which, by their nature, require the agency to make decisions based on scant or preliminary evidence. A team of 50 people is working on health reform, in consultation with a panel of 21 outside experts. All recognize the fine line the CBO must walk, Elmendorf said.
"It would be wrong for us to be conservative, in the sense of tilting toward zero, because we don't know" how much money an idea might save, Elmendorf said. "On the other hand, we need to not get swept up in the enthusiasm for some new idea, because not every new idea works."
Reischauer, who now serves as president of the Urban Institute and talks frequently with Elmendorf, says the job may be tougher than it was in 1994. By the time the CBO weighed in on the Clinton plan, the proposal had been ripped apart by competing interests and "was on life support," he said. This time, "you have all the stakeholders standing around, holding hands and singing, 'Kumbaya,' ready to go."
So far, Elmendorf "seems to be sleeping okay," Reischauer said. "But I think his seat will be scorching hot by the middle of the summer."
