More inconvenient analysis from the CBO

The Obama administration had been touting their plan to lower Medicare costs by giving power to an independent panel to cut spending. But now the CBO has come out and reported that such a plan would only produce meager savings over the next decade.

A key House chairman and moderate House Democrats on Tuesday agreed to a White House-backed proposal that would give an outside panel the power to make cuts to government-financed health care programs. White House budget director Peter Orszag declared the plan "probably the most important piece that can be added" to the House's health care reform legislation.

But on Saturday, the Congressional Budget Office said the proposal to give an independent panel the power to keep Medicare spending in check would only save about $2 billion over 10 years- a drop in the bucket compared to the bill's $1 trillion price tag.

"In CBO's judgment, the probability is high that no savings would be realized ... but there is also a chance that substantial savings might be realized. Looking beyond the 10-year budget window, CBO expects that this proposal would generate larger but still modest savings on the same probabilistic basis," CBO Director Douglas Elmendorf wrote in a letter to House Majority Leader Steny Hoyer on Saturday.

On his White House blog, Orszag – who served as CBO director in 2007 and 2008 – downplayed the office's small probable savings number in favor of the proposal's more speculative long-term benefits.

Budget chief Peter Orszag is all proud about those proposed "modest savings" that this program could generate after a decade, but that seems like a pretty thin hook to hang their budget-saving hat on. And it gives nothing to those Democrats who were hoping to have a fig leaf of cost savings to offset the massive new spending that the reforms of health insurance would bring.

But scoreable offsets are the immediate savings that fiscally conservative Blue Dogs and other Democratic moderates have been pushing for precisely because they will help offset the bill's cost.

The proposal's meager savings are a blow to Democrats working furiously to bring down costs in order to win support from Blue Dogs, who have threatened to vote against the bill without significant changes. The proposal was heralded as a breakthrough on Tuesday after Blue Dogs and House Energy and Commerce Chairman Henry Waxman emerged from the White House with agreement on giving the independent panel, rather than Congress, the ability to rein in Medicare spending.

James C. Capretta and Yuval Levin explain more about how such a panel would work.

For months, the president said he knew how to "bend the cost-curve" with painless innovations like information technology and new effectiveness research, but CBO said these simply wouldn't work. So, now, at the eleventh hour, the president is hailing a new approach--vast new powers for a board of experts in Washington to set rules and calibrate fees--as the secret to cutting costs and bringing the system under control, first within Medicare and then beyond. But in a system as complex as ours, this is a recipe for one-size-fits-all inefficiency and the shortages, misallocations, and waiting lines that come with it. This is even worse than simple rationing; it is an attempt at technocratic central planning for a country of over 300 million people.

The idea of subtle adjustments of rules and incentives to drive doctor and patient behavior is nothing new, of course. It has been tried several times in America--most notably in 1989, when an expert commission was assigned to devise a new fee schedule for Medicare that would reward general practitioners and drive more medical students to become family physicians. The group sought carefully to manipulate prices and payments to drive practitioner decisions, but the results of their efforts were exactly the opposite of their intent. Specialists have triumphed with tests and procedures, general practitioners have vanished--not just for Medicare patients but for everyone--and doctors despise the complicated fee schedule.

There is no reason to think the new council of experts would be any better able to bring America's vast and complex health care system under centralized rational control. Doctors know better than anyone that efforts at such control constrain their ability to respond to the needs of the unique patient in front of their nose--and they are growing increasingly uneasy with this element of the Obama plan, just as the general public is growing uneasy about costs.

Great. We'd have this centralized planning panel that would try to standardize and centralize medical planning and it would barely save any money over the next decade and we're left the slender reed of hope that it could produce modest savings after 10 years. On such speculation we want to hand over even more control to the federal government over health care?