FORBES
BY AVIK ROY

Rep. Tim Murphy (R., Penn.) has sponsored the CBO Transparency Act, a bill that would require CBO to publish its methodologies for public scrutiny. (Photo credit: Wikipedia)
 
Today, the Congressional Budget Office released its post-Supreme Court estimates of Obamacare’s impact on the deficit. The headline is that the CBO estimates that states opting out of Medicaid will reduce the deficit by $84 billion from 2012-2022, compared to its previous estimate, and result in 3 million fewer people gaining coverage from the law. The CBO also estimated that repealing the law would be less costly than previously assumed. Let’s scratch under the surface and see what we can glean about the CBO’s thinking.
 
“CBO and [the Joint Committee on Taxation] now anticipate that some states will not expand their programs at all or will not expand coverage to the full extent authorized by the ACA,” CBO Director Douglas Elmendorf writes. “CBO and JCT also expect that some states will eventually undertake expansions but will not do so by 2014 as specified by the ACA.” CBO now projects that the insurance coverage provisions of the law will cost $1,168 billion from 2012-2022, compared to a previous estimate of $1,252 billion.
 
But what are the assumptions behind this projection? A lot of guesswork. “What states will be able to do and what they will decide to do are both highly uncertain,” writes Elmendorf. “As a result, CBO and JCT’s estimates reflect an assessment of the probabilities of different outcomes (without any explicit prediction of which states make which choices) and are, in their judgment, in the middle of the distribution of possible outcomes.”
 
Yuval Levin and Jim Capretta have made the case that the Supreme Court’s decision that the mandate is a tax, and not a penalty, will mean that fewer people will comply with the mandate. Elmendorf disagrees. “CBO and JCT’s original assessment of the effects of the coverage requirement was strongly rooted in comparisons with other taxes and penalties, drawing heavily from the academic literature on tax compliance…CBO and JCT continue to expect similar behavioral responses to the insurance requirement.”
 
Key to the CBO’s math is their guess that 6 million fewer people will enroll in Medicaid or its cousin, the Children’s Health Insurance Program (CHIP), while 3 million more people will sign up for the law’s subsidized exchanges for private insurance.
 
The average person enrolled in the Medicaid expansion will cost $6,000 in 2022, whereas the average person enrolled in an exchange will cost around $9,000. As a result, people who sign up for the exchanges, who would have previously been signed up for Medicaid, will cost the government more money. That means that in 2022, the government (including state matching funds) will save $37 billion on Medicaid while spending an additional $28 billion on the exchanges, for a net savings of $9 billion.
 
The CBO’s result isn’t surprising. When I spoke to plugged-in people on Capitol Hill after John Roberts handed down his decision, they said that CBO was continuing to assume that states would participate in the Medicaid expansion. It’s a defensible point of view—after all, there isn’t a long history of state governments turning down federal funds—but this case may be the exception that proves the rule.
 
Now that several governors have come out against the Medicaid expansion, the CBO has budged a bit in their direction. “CBO anticipates that, instead of choosing to expand Medicaid eligibility fully to 138 percent of the [federal poverty level] or to continue the status quo, many states will try to work out arrangements with the Department of Health and Human Services (HHS) to undertake partial expansions. For example, some states will probably seek to implement a partial expansion of Medicaid eligibility to 100 percent of the FPL, because, under the ACA, people below that threshold will not be eligible for subsidies in the insurance exchanges.” If all states were allowed to do this without any pushback from Washington, the impact to the deficit could be in the trillions.
 
CBO assumes that around a third of the people eligible for the Medicaid expansion—the 6 million described above—will not enroll in Medicaid due to state opt-outs. They assume that a third of the overall 18 million will reside in states that fully expand Medicaid; half in states that partially expand Medicaid, and a sixth in states that opt out entirely.
 
Furthermore, the CBO estimates that of the 6 million who won’t get Medicaid, one quarter would have been eligible for Medicaid prior to Obamacare: the increasingly infamous “woodwork” population. Of the remaining three-quarters (4.5 million), one-third (1.5 million) are also eligible for the exchanges, because their income is above 100 percent of the federal poverty level.
 
Repealing the law will be cheaper than previously estimated
 
The CBO also predicted that repealing Obamacare would increase the deficit by $109 billion over the 2013-2022 period, a smaller figure than its 2011 estimate that repeal would increase the deficit by $145 billion from 2012-2019. Note that the new estimate covers an 10-year period, whereas the prior one covered an 8-year period.
 
According to CBO, the new repeal bill would reduce direct spending by $890 billion from 2013-2022, but also reduce tax revenue by $999 billion, leading to a net increase in the deficit of $109 billion. Part of the challenge, says CBO, is that “some provisions [of the law] cannot be retroactively adjusted. For example, payment rates and subsidized benefits in the Medicare Advantage program and the Part D prescription drug program…were established in negotiated contracts.”
 
But the biggest reason, as the charts below show, is that the law’s tax increases continue to go up after 2018, whereas the CBO expects the law’s spending to level off after 2018. This, in large part, is due to Obamacare’s “Cadillac tax” against high-value health insurance plans, that will affect an increasing number of Americans as time goes on. The CBO’s view appears to make generous assumptions about future economic growth, given the law’s substantial tax hikes and the overall condition of the economy.
 
 
 
Are the CBO’s projections biased?
 
Matthew Boyle of the Daily Caller suggests that CBO estimates might have a liberal bias. A senior health-care analyst at CBO, Melinda Buntin, “personally donated more than $26,000 to Democratic politicians and campaign committees,” including President Obama, and served as an Obama spokeswoman in 2008. Moreover, the Daily Caller notes a Boston Globe report that Buntin’s parents have donated almost $600,000 to Democrats since 2007.
 
A follow-up report from the Daily Caller indicates that several Republican senators sought to terminate Buntin’s involvement with CBO, but that CBO Director Douglas Elmendorf successfully lobbied Congress in her defense.
 
“In preparing its cost estimates and other analyses, CBO uses data and other information from a wide variety of sources, consults with outside experts representing a variety of perspectives, applies a rigorous internal review process that involves multiple people at different levels of the organization, and enforces strict rules to prevent conflicts of interest,” Elmendorf told the Daily Caller. “We have the utmost confidence in the objectivity of the work that CBO produces.” According to Elmendorf, Buntin was not a significant player in today’s reports.
 
I don’t think the CBO seeks to advance a partisan agenda. And just because someone donates to one party or the other doesn’t automatically mean her work is biased. But I do think that many of the CBO’s key assumptions tend to favor government over market reforms.
 
The CBO’s health care projections are predominantly influenced by the work of one economist: MIT’s Jonathan Gruber, who happens to have been a key architect of Obamacare. “We knew the numbers he gave us would be close to where the CBO was likely to come out,” said Obama health-care adviser Neera Tanden, reflecting on the design of Obamacare.
 
It’s high time for full CBO transparency
 
Ideally, the CBO would publish its economic models, so that independent economists could road-test their assumptions. But the CBO refuses to allow it. For this reason, seven House members, led by Tim Murphy (R., Penn.), have introduced the CBO Transparency Act. It’s a simple, two-page bill that requires the CBO Director to “post on the public website of the Congressional Budget Office all working papers, including data, informational papers, methodologies, spreadsheets, computer programs, background data, revenue estimates, and aggregate data provided by the Joint Committee on Taxation, and any other material used to derive such cost estimate.”
 
The bill’s co-sponsors are Reps. Paul Broun (R., Ga.), Louie Gohmert (R., Tex.), Dennis Ross (R., Fla.), Steve Stivers (R., Ohio), Pat Tiberi (R., Ohio), and Gene Green (D., Tex.).
 
It’s not clear to me why the CBO is afraid of transparency. Shielding its models from the public invites accusations of partisan bias. The CBO’s projections have such a huge impact on Congressional legislation that the public interest in scrutinizing CBO’s methodology far outweighs any countervailing concerns.
 
“Today, you can access government data on everything from hospital visits, crop yields, and air quality levels, which are used to produce major regulations by the EPA,” said Rep. Murphy. “CBO is an outlier in an era of transparency.” Tim Murphy is right: it’s time for the CBO to join the modern world.
 
Follow Avik on Twitter at @aviksaroy.