Congressional Budget Office Research Articles

How Good Are the Government’s Deficit and Debt Projections and Should We Care?

Each year, the Congressional Budget Office (CBO) publishes its Budget and Economic Outlook. The CBO’s deficit projections for the current fiscal year (FY) and the next 10 FYs are widely followed because they provide an assessment of the medium-term budget outlook based on current law and a presumed path for the economy over the next decade.

The Congressional Budget Office: honest numbers, power, and policymaking

1. Truth, Power, and Consequences 2. Organizing for Nonpartisan Analysis 3. Macrobudgeting 4. Microbudgeting 5. Policy Analysis 6. Clinton Health Plan: Bringing It All Together 7. Obama Health Care Reform 8. An Excellent Skunk? Index

What Is Potential GDP and Why Does It Matter?

One look at recent Congressional Budget Office data shows how much estimates of the output gap can change as time passes.

Expectations about the Federal Reserve's Balance Sheet and the Term Structure of Interest Rates

This paper provides a systematic assessment of the effect of the Federal Reserve's asset purchase programs on Treasury yields, with particular emphasis on the role of market expectations about the evolution of the Federal Reserve's balance sheet and of interest rates on the impact of the programs. We construct measures of such market expectations based on Blue Chip survey forecasts, Congressional Budget Office projections, and information from formal FOMC communications. Those measures are combined with a no-arbitrage term structure model, in which yields are driven by current and expected future private Treasury holdings, among other factors. This approach allows us to provide estimates of the term premium effects of the asset programs both at the time of the announcements and in the future as expectations about the economy and the Federal Reserve's balance sheet evolve. Our results suggest that the program with the largest initial impact on the ten year Treasury yield was the first purchase program, which is estimated to have held down rates by about 40 basis points in early 2009, and the initial maturity extension program had the second largest estimated impact at its inception, pushing rates down by about 20 basis points in late 2011. Currently, we estimate all programs combined are holding down the 10-year yield by about 65 basis points, of which about one-third is attributable to the first purchase program.

Book Reviews

Kory Kroft of University of Toronto reviews “Policy and Choice: Public Finance through the Lens of Behavioral Economics” by William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan. The EconLit abstract of the reviewed work begins, “Explores how psychological factors reshape core public finance concepts such as moral hazard, deadweight loss, and incidence. Discusses psychology and economics; behavioral economics and public finance; asymmetric information; externalities and public goods; poverty and inequality; and taxation and revenue. Congdon is Research Director with the Economic Studies program at the Brookings Institution. Kling is Associate Director for Economic Analysis at the U.S. Congressional Budget Office. Mullainathan is Professor of Economics at Harvard University. Index.”

Groups Want Liability Reform Included in Budget Debates

Back to table of contents Previous article Next article Government NewsFull AccessGroups Want Liability Reform Included in Budget DebatesMark MoranMark MoranSearch for more papers by this authorPublished Online:4 Nov 2011https://doi.org/10.1176/pn.46.21.psychnews_46_21_6_1AbstractAPA joined the AMA and more than 50 medical specialty groups as well as state medical societies in urging the special congressional committee charged with devising a deficit reduction plan to include medical liability reform in its proposals. In separate October 3 letters, APA and the other medical groups told the cochairs of the Joint Select Committee on Deficit Reduction (often called the "supercommittee") that medical liability claims and the high cost of liability insurance for physicians contribute significantly to increasing costs in publicly funded health programs. "The inefficiencies of our current medical liability system, escalating and unpredictable awards, and the high cost of defending against lawsuits, including those without merit, contribute to the increase in medical liability insurance premiums and add billions of dollars to the cost of health care each year—which means higher government spending on Medicare, Medicaid, and other federal health benefits programs and higher health insurance premiums for patients," they said.The supercommittee cochairs are Sen. Patty Murray (D-Wash.) and Rep. Jeb Hensarling (R-Texas). It was established in the budget deal to which Congress agreed in August following a showdown over raising the debt ceiling. The 12-member committee—consisting of six members (three Democrats and three Republicans) from both the House and the Senate—was charged, as part of the budget deal, with determining how various federal programs will be cut and how the deficit will be reduced. "Regular" standing committees of Congress were required to recommend total savings and/or possible revenues of $1.5 trillion by October 15, and the Joint Select Committee must in turn vote on a package of savings/revenues by November 23 and report out a bill to the House and Senate by December 2. If the Joint Select Committee fails to act, or if Congress or the president fails to approve what the committee recommends, then "automatic sequestration"—mandatory cuts—will go into effect that must achieve $1.2 trillion in savings from defense and nondefense funding over 10 years (Psychiatric News, August 19). In their letters to the cochairs, APA and the other medical groups said that reforming the liability system will "save American taxpayers billions of dollars while protecting patient access to care." They noted that the Congressional Budget Office has estimated that implementing comprehensive medical liability reforms, including limits on noneconomic damages, would reduce the federal budget deficit by $62.4 billion over 10 years. Additionally, the groups noted, the National Commission on Fiscal Responsibility and Reform (appointed by President Obama) recommended in December 2010 that medical liability reform be part of a solution to reduce the federal budget deficit. APA and the other groups urged a list of specific reforms (see Liability Reforms Recommended by APA and Other Medical Groups) saying they would "save taxpayers money while simultaneously improving our health care and legal systems."The letters are posted at <www.psych.org/MainMenu/AdvocacyGovernmentRelations/GovernmentRelations/MLR-Murray-Letter.aspx> and <www.psych.org/MainMenu/AdvocacyGovernmentRelations/GovernmentRelations/Hensarling-MLR-.aspx>. ISSUES NewArchived

The Supercommittee Stirs LTC-Policy Pot

The Supercommittee Stirs LTC-Policy Pot

Public Capital Maintenance, Decentralization, and US Productivity Growth

Data published by the US Congressional Budget Office show that over the last fifty years expenditures for infrastructure’s operations and maintenance (O&amp;M) have roughly equalled those for new capital. We use this data set to investigate the productive impact of public infrastructure spending, taking into account its composition for each government level. We find that a rise (fall) in infrastructure expenditures by states and localities (the federal government) would enhance future productivity growth and that the rise in state and local spending should mainly come from additional O&amp;M outlays in the transport sector.

Commentary: Epidemiology, Comparative Effectiveness Research, and the National Institutes of Health

In December, 2007, the Congressional Budget Office (CBO) released a report entitled “Research on the Comparative Effectiveness of Treatments.”1 The CBO noted that for many conditions high-quality evidence that can direct clinical care is lacking. The report called for expanded federal efforts in comparativeness effectiveness research (CER), defined as “a rigorous evaluation of the impact of different options that are available for treating a given medical condition for a particular set of patients.” Subsequent to the CBO report, two major pieces of Congressional legislation have stimulated public interest in CER. The American Recovery and Reinvestment Act of 2009 allocated $1.1 Billion to the National Institutes of Health (NIH), the Agency for Health Research and Quality (AHRQ), and the Office of the Secretary for Health and Human Services to fund comparative effectiveness research, and to generate major reports on national priorities in CER. The Affordable Care Act of 2010 established a non-profit nongovernmental “Patient Centered Outcomes Research Institute”2 that will establish and oversee a national research program and attempt to establish methodological standards for CER. While the CBO report and the two Congressional Acts have drawn much attention to CER, such research is not new.3 The NIH and the Veterans Administration (VA) have supported comparative effectiveness research for decades. However, the new national focus on CER has stimulated a number of discussions—and, at times, debates4—on topics such as the need for more high-quality clinical evidence, the attitudes of physicians towards science and evidence-based decision-making,5 the role of economics research in health care,6 and (among the most contentious issues) the complementary roles of observational and experimental research in informing clinical care.7,8 With the advent of the informatics revolution and advances in biostatistical methods, some are asking whether population-based and clinical epidemiology may be in a position to push aside the “gold standard” status traditionally given to randomized trials. Others are more cautious, noting that observational findings have often led to dangerously wrong conclusions.

Bundled Medicare Pay Means Big Changes

Bundled Medicare Pay Means Big Changes

The Independent Payment Advisory Board

The Independent Payment Advisory Board (IPAB) is a vastly powerful component of the president’s health care reform law, with authority to issue recommendations to reduce the growth in Medicare spending, providing recommendations to be considered by Congress and implemented by the administration on a fast track basis. Ever since its inception, IPAB has been one of the most controversial issues of the Patient Protection and Affordable Care Act (ACA), even though the powers of IPAB are restricted and multiple sectors of health care have been protected in the law. IPAB works by recommending policies to Congress to help Medicare provide better care at a lower cost, which would include ideas on coordinating care, getting rid of waste in the system, providing incentives for best practices, and prioritizing primary care. Congress then has the power to accept or reject these recommendations. However, Congress faces extreme limitations, either to enact policies that achieve equivalent savings, or let the Secretary of Health and Human Services (HHS) follow IPAB’s recommendations. IPAB has strong supporters and opponents, leading to arguments in favor of or against to the extreme of introducing legislation to repeal IPAB. The origins of IPAB are found in the ideology of the National Institute for Health and Clinical Excellence (NICE) and the impetus of exploring health care costs, even though IPAB’s authority seems to be limited to Medicare only. The structure and operation of IPAB differs from the Medicare Payment Advisory Commission (MedPAC) and has been called “MedPAC on steroids”. The board membership consists of 15 full-time members appointed by the president and confirmed by the Senate with options for recess appointments. The IPAB statute sets target growth rates for Medicare spending. The applicable percent for maximum savings appears to be 0.5% for year 2015, 1% for 2016, 1.25% for 2017, and 1.5% for 2018 and later. The IPAB Medicare proposal process involves mandatory recommendations and advisory recommendations with multiple reporting requirements. However, although IPAB has been described as having limited authority, some believe that it has unlimited authority due to the lack of judicial review and the requirement of twothirds of the Congress to override any recommendations by IPAB. Key Words: Independent Payment Advisory Board (IPAB), Patient-Centered Outcomes Research Institute (PCORI), Congressional Budget Office (CBO), National Institute for Health and Clinical Excellence (NICE), Patient Protection and Affordable Care Act (ACA), interventional pain management, interventional techniques.

LTC-Vital Medicaid Is on the Bargaining Table

LTC-Vital Medicaid Is on the Bargaining Table

THE IMPACTS OF THE AFFORDABLE CARE ACT: HOW REASONABLE ARE THE PROJECTIONS?

The Patient Protection and Affordable Care Act (ACA) is the most comprehensive reform of the U.S. medical system in at least 45 years. The ACA transforms the non-group insurance market in the United States, mandates that most residents have health insurance, significantly expands public insurance and subsidizes private insurance coverage, raises revenues from a variety of new taxes, and reduces and reorganizes spending under the nation's largest health insurance plan, Medicare. Projecting the impacts of such fundamental reform to the health care system is fraught with difficulty. But such projections were required for the legislative process, and were delivered by the Congressional Budget Office (CBO). This paper discusses the projected impact of the ACA in more detail, and describes the evidence that sheds light upon the accuracy of the projections. It begins by reviewing in broad details the structure of the ACA and then reviews evidence from a key case study that informs our understanding of the ACA's impacts: a comparable health reform that was carried out in Massachusetts four years earlier. The paper discusses the key results from that earlier reform and what they might imply for the impacts of the ACA. The paper ends with a discussion of the projected impact of the ACA and offers some observations on those estimates.

Are Higher or Lower Medicare Rates Ahead?

Are Higher or Lower Medicare Rates Ahead?

Taming the Beloved Beast: How Medical Technology Costs are Destroying Our Health Care System and Still Broken: Understanding the U.S. Health Care System

Taming the Beloved Beast: How Medical Technology Costs are Destroying Our Health Care System and Still Broken: Understanding the U.S. Health Care System

THE IMPORTANCE OF COMMITTEE ASSIGNMENT: HEALTH CARE INDUSTRY POLITICAL ACTION COMMITTEE CONTRIBUTIONS AND THE HOUSE OF REPRESENTATIVES

I. INTRODUCTION The Congressional Budget Office estimates that total spending on health care will increase from 16% of gross domestic product (GDP) in 2007 to 25% in 2025 even as almost 15% of Americans lack health insurance. The debate surrounding health care financing and access has been around for almost 75 years since the Social Security Act was passed in 1935, but the issue of health care reform received more attention as rising health care costs and limited access to health care services became a campaign issue and later a failed domestic policy objective during the Clinton administration. The current system of health care is not sustainable. Reform of the health care system will create winners and losers, particularly among consumers, taxpayers, and members of the health care industry. Unlike the average consumer and taxpayer, however, members of the health care industry may have the ability to influence the outcomes of health care legislation through political action committee contributions. This paper explores the relationship between House committee membership and campaign contributions from political action (PACs) representing specific sectors of the health care industry over three election cycles, 1997-1998, 1999-2000, and 2001-2002. Although there have been a few papers dealing with PAC contributions from the American Medical Association (AMA) and voting on particular pieces of legislation affecting the health industry and one paper dealing with PAC contributions from sectors of the health industry and voting on medical liability legislation, the role of committee membership and PAC contributions has not been examined with respect to the health industry. Economic theory suggests that individual have more power than the entire Congress over their areas of jurisdiction. Individual legislators, recognizing the power of committees, seek legislative assignments that benefit their constituents' interest and the congressperson's own chance of reelection. Bennett and Loucks (1994, 1996, 2008) provide evidence that committee membership is one of the most important determinants of PAC contributions from different sectors of the financial services industry to members of the House of Representatives. In this paper, we extend that analysis to the health industry. In particular, we examine the relationship between PAC contributions from four sectors of the health industry to individual legislators over the 1998-2002 election cycles using a sample selection model. We expect to find that membership on that have significant oversight responsibilities for the health care industry, the Appropriations Committee, the Committee on Energy and Commerce, the Veterans' Affairs Committee, and the Committee on Ways and Means, is positively and significantly related to contributions from PACs representing different sectors of the health care industry. We expect that committee membership matters to health industry PACs, and health industry PACs will contribute disproportionately to those legislators who sit on committee with oversight responsibilities for the health care industry. II. LITERATURE REVIEW As discussed in Weingast and Moran (1983) and Weingast and Marshall (1988), individual have more power than the entire Congress over their areas of jurisdiction. As noted by Grier and Munger (1991, p. 25), committees in Congress, and particularly in the House of Representatives, possess disproportionate power over the policy areas in their respective jurisdictions, have the right to hold hearings, and recommend budget allocations for the bureaus in their district. Committee members determine the nature and content of any legislation that reaches the floor and have the power to prevent legislation from ever reaching the floor. Krozner and Stratmann (2000) also note that the relationship between PACs and congressional standing committee members may be particularly strong because the committee structure gives PACs the ability to build long-term relationships with members of because of the near permanent nature of standing and the ability of legislators to keep their committee assignments for as long as they are in the House (p. …

The 1 Percent Solution

This working paper lays out a general framework for how the nation can address its long-term fiscal challenges, without tax increases, to avert the coming fiscal crisis and balance the budget within the next decade. This paper does not provide a master plan identifying specific programmatic spending reductions in discretionary spending, such as defense and agriculture, nor in entitlement programs, such as Social Security, Medicare, and Medicaid. Entitlement spending on Medicare and Medicaid alone is estimated to continually increase as a share of the economy. Controlling the increase in the runaway growth of health-care expenditures will require tough choices that many politicians seem unable to make, and that the public may or may not support. However, what is clear is that spending needs to be controlled. Delaying the tough choices necessary will only require even tougher and harder choices down the road. This paper provides a framework to compare and evaluate other reform plans and, just as importantly, to stimulate discussion on how to control and reduce government spending.The United States has a spending problem. For fiscal year 2010, the federal government spent approximately $3.5 trillion, or almost 24 percent of GDP, while collecting $2.2 trillion in revenue. The result was a $1.37 trillion deficit. For fiscal year 2011, the Congressional Budget Office (CBO) estimates the deficit will increase to over $1.5 trillion, and the Office of Management and Budget (OMB) estimates that the deficit will be $1.6 trillion. While debt held by the public was approximately $9 trillion in fiscal year 2010, or 62 percent of GDP, the national gross debt, which includes bonds such as those held in the Social Security trust fund, now stands at over $14 trillion and is estimated to climb to over $15 trillion in fiscal year 2011, which would amount to almost 100 percent of GDP.

Comparative Effectiveness Research in Radiology: Patients, Physicians and Policy Makers

Health care costs continue to rise, with significant geographic differences in spending on health care and outcomes within the United States. The goal of comparative effectiveness research is to reduce health care spending without adversely effecting overall health according to the Congressional Budget Office. There are unique challenges and barriers to applying comparative effectiveness research to radiology, including rapidly changing technology, complex multistep care processes, and the burden of proving the impact of a diagnostic exam on patient outcome. Radiology shares other challenges of acceptance of comparative effectiveness research results (diffusion of new knowledge and successful implementation of changes in clinical practice) with all of health care, but with the added complication that radiologists do not order radiology exams.

Fiscal Policy and Interest Rates: The Role of Sovereign Default Risk

Recent events have highlighted the potential importance of nonlinear efiects of flscal variables (notably debt and deflcits) on interest rates: While in times when government solvency is not a concern the standard crowding-out efiects are of moderate magnitude, in times when default risk becomes an issue the interest rate efiects can become very large. This paper provides new evidence on the magnitude of these efiects. For the case when default risk is not a concern, it uses an arbitrage-free term structure model to estimate the dynamic efiects of flscal policy shocks on interest rates along the entire maturity spectrum. For the case when default risk becomes a concern (thereby violating a central assumption of the term structure model), I present evidence based on EMU government bond spread regressions on time-varying efiects of national flscal policies on spreads as well as the time-varying sensitivity of yield spreads to international risk aversion as a function of the state of flscal policy. JEL classiflcation: E6, H6.

Administration Defends LTC in Reform Fight

Administration Defends LTC in Reform Fight