Orszag: CBO lowballs savings from Obama's healthcare reform

White House Budget Director Peter Orszag is arguing that the Congressional Budget Office (CBO) underestimates the savings from President Barack Obama's healthcare bill.

CBO, the independent agency Orszag ran before he joined the Obama administration, said the legislation will reduce deficits $143 billion in its first decade and by even more -- roughly 0.25 percent to 0.5 percent of gross domestic product -- in its second decade. That would probably amount to more than $1 trillion in savings, but Orszag considers that a lowball estimate.

"I think if anything, the deficit impact may well turn out to be larger than what was projected by the Congressional Budget Office for two reasons," Orszag said at an event sponsored by the Economic Club of Washington.

"One, if you look at the history of projections on major pieces of legislation, they've tended to be too conservative rather than too optimistic," he said. "And second, the scoring largely does not take into account this evolution toward paying for quality, which I think in this decade will begin to pay off."

Orszag and Democrats in Congress have clashed with CBO before over its projections. Orszag questioned a CBO attempt last summer to project the budget impact of one key provision aimed at constraining health costs, a commission of doctors and experts that will propose cuts to wasteful Medicare spending.

CBO said in July 2009 that the Medicare commission, whose recommendations would become law unless Congress voted to reject them, would create about $2 billion in savings in this decade and by "tens of billions of dollars after 2019."

But Orszag said CBO seemed to have "overstepped" by providing a cost estimate of savings from the panel without specifying them.

“As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings,” Orszag wrote last summer. “Unfortunately, parts of today’s analysis from CBO could feed that perception.”

Senate Democrats last year, as they tried to craft a bill that would win support from fiscal hawks, criticized the independent budget office for failing to account for savings from proposed reforms to the way healthcare was delivered.

Orszag this week argued that those reforms will help shift the health system from one that bases payments on quantity of healthcare provided to a more efficient model whose costs are tied to quality of care. Reining in Medicare spending, the fastest growing entitlement, will be a key to reining in a $12.8 trillion federal debt, fiscal watchdogs have said.

A slew of those reforms, including the Medicare commission, will be enacted as part of the healthcare measure.

"Folks have not focused on the Medicare commission," Orszag said. "This institution could prove to be far more important to the future of our fiscal health than, for example, the CBO."

Orszag said the CBO's estimates of the health bill's fiscal impact may end impact being conservative, but he also believes that the independent budget office generally got it right.

"CBO did exactly what they should be doing, which is being prudent and assigning exact values to a lot of the game-changers which will bring down the rate of healthcare cost growth over time," said Kenneth Baer, a spokesman for the White House Office of Management and Budget.

CBO Director Douglas Elmendorf said this week he's "very comfortable" with his estimates, despite skepticism from both Democrats and Republicans. GOP members have dismissed CBO's predictions of small deficits because of the health bill, arguing that it's another entitlement that will cost more than expected.

"There are a number of people who expressed concern that we were being gamed, and I worried about that throughout the year," Elmendorf told reporters Thursday. "But I don't think we were gamed -- or at least not in the sense that people seemed to be using that word."

Elmendorf did acknowledge there was a great deal of uncertainty in his estimates, especially since they deal with healthcare spending. He noted that CBO projections of the Medicare prescription drug benefit signed into law by President George W. Bush in 2003 overestimated the actual cost.

"The uncertainty of the underlying health patterns is a very important one in analyzing the effects of any part piece of legislation," Elmendorf said. "When we estimated the effects of the prescription drug law, we had estimates that were here, the Medicare actuary was actually here, [and] the truth came out here."