Imagine there is a group of people in Congress with more influence over whether laws are passed and rules are changed, than any official committee or subcommittee in the House and Senate.
Now, imagine the members of this powerful group are not even members of Congress – in fact, they’re not elected officials at all.
Finally, imagine this group operates in secret, refuses to explain its decisions in detail to anyone, and has shown a consistent bias against free market principles.
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Unfortunately, you don’t have to imagine this scenario. It’s part of the sad reality of trying to govern in Washington under the influence of the Congressional Budget Office (CBO).
The CBO is tasked with providing budgetary and economic analysis about the impact of proposed legislation or rules issued by executive branch agencies. It is technically a nonpartisan agency, but it has historically shown a bias toward a left-wing economic worldview through its use of static scoring. This method assumes little to no behavior changes from market players due to changes in law.
Here’s a look at the CBO’s recent track record with scoring major legislation.
In 2003, the CBO released a wildly inaccurate analysis of the new, market-oriented Medicare Part D program. The office projected total costs from 2004-2013 to be almost double what bore out in reality. This $349 billion mistake was the result of CBO’s inability, or unwillingness, to anticipate the premium-lowering impact of robust competition between private sector plans.
In 2005, the CBO had to issue a $63 billion correction to its forecasts because it anticipated lost revenue from the 2003 Bush tax cut. The losses never materialized. The CBO ignored the growth of the tax cuts generated in its analysis.
In 2010, the CBO was critical to the passage of ObamaCare. It gave credence to White House claims that the law would lower the deficit and boost the economy. Then, in 2014, after the law was implemented, the CBO had to update its projections. The new analysis claimed the law would result in 2.5 million fewer jobs by 2024. Using these updated projections, Republican staff on the Senate Budget Committee estimated ObamaCare would increase the deficit by $131 billion. (It later came out that CBO’s original projections were based on the same models that ObamaCare’s chief architect Jonathan Gruber used to design the bill.)
Notice a pattern? The CBO consistently underestimates the positive impact from supply-side, market-oriented reforms while giving Keynesian, big government policies the benefit of the doubt.
Despite claims of reform and an attempt to incorporate more dynamic scoring, which anticipates the impact of policies in the marketplace, CBO projections are still sabotaging free-market reforms.
The CBO arguably killed the Republicans attempt to replace ObamaCare with better reforms of the individual marketplace. It estimated that the American Health Care Act would lead to 24 million fewer Americans with insurance coverage. This is totally at odds with what we have seen since the individual mandate was subsequently repealed in the Tax Cuts and Jobs Act – and many states have utilized section 1332 waivers to lower premiums with reinsurance systems similar to what would have been created in the Republican health care law.
And just last week, the CBO delivered another absurd estimate of a common-sense, market-oriented reform in health care. This time it was the Trump administration’s proposed rule to ban drug manufacturers from giving secret rebates to pharmacy benefit managers. Instead, rebates would be passed to patients at the pharmacy counter.
I have written about this important reform before. In short, the rule would save patients money on out-of-pocket costs and remove a huge perverse incentive in the drug marketplace which incentives manufacturers to keep increasing the list price of drugs to offer bigger discounts to the middlemen in the supply chain.
When Health and Human Services released the proposed rule, it included an impact study of the change by Milliman, an actuarial and consulting firm which conducts analyses for players in the private health care sector.
Contrasting the reports by Milliman and the CBO is instructive.
The Milliman report notes that “it is critical to consider possible behavioral impacts” from the rule changes because “all stakeholders would likely change behavior as a result.” Then, instead of arrogantly trying to predict the exact combination of behavioral changes by each element of the drug supply chain, Milliman opted to present a range of scenarios which lawmakers could use to inform their decisions.
The CBO report, by contrast, posits almost no behavior changes from Part D plans or pharmacy benefit managers. It also assumes – without explaining its reasoning – that correcting the perverse incentives in Medicare Part D would not have spillover benefits to other markets. In other words, the CBO report assumes the least changes in behavior possible. This is static scoring in a nutshell.
The stark difference between the ideologically rigid and monopolistic approach of CBO and the professional private firm Milliman shows why its time for CBO to go.
I have long called for the elimination of the CBO and its replacement with 3-5 outside firms which would provide competing analyses. Over time, it would become apparent which firms are the best at projecting economic impact. The firms that perform the best would keep getting business while the worst performers would get replaced.
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This vigorous competition between outside firms being held accountable for their accuracy would produce better information and projections for lawmakers than the current CBO monopoly.
The bureaucrats at the CBO and the defenders of the status quo will no doubt disagree, but that makes sense. They’ve already shown they don’t understand market-oriented reforms.
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