Consider the Source

Paul Krugman has an interesting post up on how to read a CBO document.  He highlights the fact that the CBO reports using the assumptions it is required to make, not any estimate of what is particularly likely to happen in the real world:

What you need to realize is that the CBO is the servant of members of Congress, which means that if a Congressman asks it to analyze a plan under certain assumptions, it will do just that -- no matter how unrealistic the assumptions may be. CBO will tell you what's going on, but it will do so deadpan, doing nothing in terms of emphasis or placement to highlight the funny business.

Since this is what folks like me were screaming from the proverbial rooftops during the battle over healthcare reform, when the supporters were highlighting the CBO's score to argue that it was going to reduce the deficit, I find this congenial.  I wish that Krugman had walked his readers through this quite a bit earlier, of course, but better late than never.

But I could wish that he had gone over this topic just a wee bit earlier--like yesterday, when he argued that the Medicare Trustees report shows that we've done a whole bunch of deficit reduction:

In other words, the Medicare actuaries believe that the cost-saving provisions in the Obama health reform will make a huge difference to the long-run budget outlook. Yes, it's just a projection, and debatable like all projections. And it's still not enough. But anyone who both claims to be worried about the long-run deficit and was opposed to health reform has some explaining to do. All the facts we have suggest that health reform was the biggest move toward fiscal responsibility in a long, long time.

As the Official Asymmetrical Information Husband noted yesterday, the Medicare Trustees are forced to assume that all these cuts will happen . . . even though the Medicare Trustees do not appear to believe any such thing:

There are two problems with this claim. The first, as I noted earlier this week when Health and Human Services Secretary Kathleen Sebelius made a similar claim, is that it requires double counting. If the money is used to extend the program's trust fund, then it can't be used elsewhere.

The second is that Medicare's actuaries aren't confident that the program cuts called for by the PPACA will actually happen. For example, page three of the report's introduction notes that the headline estimates assume that Medicare payment rates to physicians will be cut by a total of 30 percent over the next three years despite "virtual certainty" that legislators will override the scheduled reductions. Indeed, in a somewhat extraordinary caveat, the Trustees report explicitly warns readers not to presume that its top-line cost estimates represent the most likely outcome: "It is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report."

The report provides an alternative scenario, and that scenario shows some improvement over what would have happened had the new health care law not passed--although much less than under the current-law estimates. But even those projections aren't made with great confidence: Due to the relative newness of the PPACA, the report notes, "the projections are much more uncertain than normal, especially in the longer-range future." In other words, the authors of the report don't have a whole lot of faith in these numbers--and neither should we.

The head of CMS already made it very clear that he didn't think many of the cuts in PPACA would be made--not the physician cuts, but the other cuts to providers.  And if this is true, of course, then PPACA will not reduce the deficit.

I wish Paul Krugman would do some explaining--about the source of his differential skepticism.  For all that I admire Paul Ryan's courage in arguing that there ought to be some relationship between inflow and outgo, I'll believe the cuts when I actually see them.  Which is the same way I feel about health care reform.


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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