Congressional Budget Office
Director’s Blog

CBO just released a score of the Medicare legislation (H.R. 6331, with a proposed amendment) under consideration in the House. In total, CBO estimates that the bill would reduce deficits by $0.3 billion over the 2008-2013 period and by less than $50 million over the 2008-2018 period. (The five-year savings would decline to $0.1 billion if the pending supplemental appropriations act is cleared before H.R. 6331.)

As I mentioned in a previous post, behavioral economics seems to have advanced substantially in influencing policymakers in the UK. For some recent commentary on that phenomenon, see this article from the Sunday Times and this comment on the article. The comment notes that “The Sunday Times is very good at spotting intellectual trends. When they print an entire piece on some new thinking, it is an important sign that a change is taking place.”

On Friday I participated in a briefing sponsored by the Alliance for Health Reform and the Robert Wood Johnson Foundation on the effects of health IT. The video from the event is posted here .

During my remarks, I borrowed an analogy from Laura Adams of the Rhode Island Quality Institute , to the effect that wondering how we are going to achieve more efficiency in health care is like wondering why we don’t have buttered toast. Some people say the key is to plug the toaster in; others say we need to go to the store and buy the bread; others say the key is putting the bread into the toaster and pressing the lever down; and others say the most important step is the final one, applying the butter. (For those of you who like to eat healthy, imagine wheat toast and a high-protein spread instead.) Health IT is like plugging in the toaster — necessary but not sufficient by itself to produce the buttered toast. Obtaining some combination of higher quality and lower cost from health care will also require changing the way we use information and the incentives facing providers, among other steps. In other words, health care contains massive opportunities for efficiency improvements, and health IT can facilitate some of the steps that will be crucial to improving efficiency, but capturing those opportunities will generally require more than just expanded health IT. For more on health IT, see here and here .

CBO has a team of runners in Saturday’s National Race for the Cure.  Here’s the CBO team photo from today:

I just returned from a brief trip to the United Kingdom, where among other activities I gave a talk at the Prime Minister’s Strategy Unit.

I am increasingly convinced that we need to incorporate more behavioral economics into public policy (for example, see here). The Prime Minister’s Strategy Unit has been doing impressive work on the topic. See a fascinating paper it published earlier this year on cultural change and public policy, and a related paper on personal responsibility and behavioral change issued in 2004.

CBO issued a paper on health information technology last week; the blog entry on that paper is here. Unfortunately, when we released the paper, we erroneously left Laura Adams of the Rhode Island Quality Institute off the list of reviewers who were acknowledged in the paper. Laura provided extremely valuable comments, and we are very appreciative of the time and effort she put into helping us improve the quality of the paper.

On the broader topic of reviewers of CBO products, I want to emphasize two things.  First, we regularly seek rigorous outside expert review of our studies.  Second, reviewers are not responsible for what we say or don’t say.  As noted in the preface to the health IT paper (and other CBO papers), “The assistance of external reviewers implies neither responsibility for the final product, which rests solely with CBO, nor endorsement of the conclusions of CBO’s analysis.”  In other words, the fact that an expert is listed as outside reviewer does not mean that the reviewer agrees with all (or I suppose even any!) of what appears in the document.

Health Affairs held a briefing on the future of health care reform earlier this week. A theme that emerged during the session I participated in with Jason Furman of Brookings, and that will be the focus of an upcoming speech, is the need for more attention to behavioral economics and psychology in health policy. The audio from the session is posted here, and the video is available here.

CBO released a new report this morning, prepared at the request of the Chairman of the House Committee on the Budget, analyzing the advantages and disadvantages of adopting a capital budget at the federal level. In addition, I am testifying on infrastructure spending this morning before a joint hearing of the House Committee on the Budget and the Committee on Transportation and Infrastructure. That testimony covers a broader array of topics related to infrastructure spending; a short summary is available here.

The capital budgeting report makes the following key points:

• The federal budget, which presents the government’s expenditures and revenues for each fiscal year, serves many purposes. It enables policymakers to allocate resources to serve national objectives, provides the basis for agencies’ management of federal programs, gives the Treasury needed information for its management of cash and the public debt, and provides businesses and individuals with information to make an informed assessment about the government’s stewardship of the public’s money and resources. Inflows and outflows are recorded mostly on a cash basis because those transactions are readily verifiable and they provide policymakers and the public with a close approximation of the government’s annual cash deficit or surplus.
• Some observers have proposed modifying the budgeting system by implementing a capital budget for the federal government, which would distinguish certain types of investments from other expenditures in the budget. One commonly discussed approach would segregate cash spending on capital projects in a capital budget and report in the regular budget the depreciation on federal capital assets, thus allocating current costs to future time periods. Such an approach—which would move from the current, primarily cash-based budgeting system to one that relies more on accrual-based accounting—would be similar to private-sector accounting in that it would spread capital costs over the period when benefits are accruing from the investment.
• Proponents of capital budgeting assert that the current budgetary treatment of capital investment creates a bias against capital spending and that additional spending would benefit the economy by boosting productivity. They note that capital budgeting could better match budgetary costs with benefit flows and eliminate some of the spikes in programs’ budgets from new investments. The existence and extent of any such bias, however, depends on how differently policymakers would behave with a capital budget instead of the existing budgetary treatment of capital investments. Furthermore, although evidence suggests that additional capital spending could have larger economic benefits than costs, the economic benefits of increasing capital spending by the federal government would partly depend on how well the additional funds were targeted to high-value projects and on the extent to which they would displace spending that would otherwise be undertaken by the private sector or other levels of government.
• Moving to a budget that is more reliant on accrual-based accounting could increase complexity, diminish transparency, and make the federal budget process more sensitive to small changes in assumed parameters, such as depreciation rates. (Indeed, other nations have considered adopting capital budgets, but generally decided against it for those same reasons.) Adopting an accrual approach to only one aspect of the budget could raise concerns as to whether the budgeting system would provide a fair basis for allocating the government’s resources among competing priorities. In addition, providing special treatment to certain areas of the budget, such as capital spending, could make the process more prone to manipulation. For example, arriving at a definition of capital for budgeting purposes could be a significant challenge. Concerns about such issues largely explain why previous groups charged with exploring budgetary concept issues—including the 1967 President’s Commission on Budget Concepts and the 1999 President’s Commission to Study Capital Budgeting—have rejected the idea of a separate capital budget for the federal government.
• More limited changes to the current process might still accomplish the goal of focusing on capital investment but be simpler to implement than a capital budget as traditionally defined. One approach would be to create a category for capital spending as part of a restoration of the statutory budget enforcement procedures that expired in 2002. Such a category within overall discretionary spending limits could help to highlight important policy goals. By carving out separate limits for certain programs, however, lawmakers could forgo flexibility to make budgetary trade-offs as needs change in the future. Another alternative, which would address concerns about the management of assets rather than their reporting in the budget, might be to attribute a portion of the cost of assets each year (in the form of depreciation) to the programs that use them. Requiring users to pay the costs might improve incentives for agencies to sell assets that are no longer appropriate to their needs.

The paper was written by Jeffrey Holland and David Torregrosa, with contributions from Sheila Campbell, Kathy Gramp, Amber Marcellino, Nathan Musick, and David Newman. Elizabeth Cove wrote the appendix. Robert Dennis, Peter Fontaine, Theresa Gullo, Kim Kowalewski, and Leo Lex directed the research.

Various media reports are incorrectly attributing to CBO a figure (that the average driver would save about $30 this summer) associated with a gas tax holiday. CBO has not published such a figure and the citations to CBO are inaccurate.

This misattribution raises a larger point.  CBO is a nonpartisan organization, and we are not in the business of scoring or evaluating campaign proposals. In some cases, CBO may have previously estimated or evaluated a proposal similar to one subsequently proposed in a campaign and those estimates generally are available on our website.

The bottom line: If you read something suggesting that we have issued numbers or an analysis about a campaign proposal, you should be skeptical — and also let us know.

Today, CBO released a new issue brief on increasing disparities in life expectancy. Here I provide a brief summary of the brief (yes, I recognize the irony in that phrasing):

• Life expectancy has been steadily increasing in the United States for the past several decades. Recent gains in life expectancy have not, however, been shared equally across socioeconomic groups. Although the gaps between women and men and between whites and African Americans have narrowed somewhat, differences by educational attainment and income have been growing. In other words, socioeconomic status has become an increasingly important determinant of life expectancy.
  • In 1980, life expectancy at birth was 2.8 years longer for the highest economic group than for the lowest economic group. By 2000, this gap had increased to 4.5 years. The change in the gap of 1.7 years is more than half of the increase in average life expectancy at birth between 1980 and 2000.
  • In 1980, the difference in life expectancy at age 65 between the highest and lowest economic groups was 0.3 years; by 2000, the difference had increased to 1.6 years. This increase in the gap is more than 80 percent of the increase in average life expectancy at age 65 over this period.
• The implications of a continued widening of the gap in life expectancy by socioeconomic status are clear for Social Security but less so for Medicare.
  • For Social Security, a widening gap would worsen the long-term shortfall in financing and reduce the program’s progressivity—the extent to which it redistributes resources from high-income to low-income people.
  • For Medicare, it is not clear whether a widening gap would exacerbate the cost increases that will result from increasing longevity. How the share of Medicare spending on low-income individuals would change depends on the relative proportional changes in life expectancy.

The brief was written by Joyce Manchester and Julie Topoleski from our outstanding long-term modeling group.