CBO: A Brief History of Being Objectively Wrong

When the Congressional Budget Office released its score on the House Republicans’ Obamacare replacement bill, House Minority Leader Nancy Pelosi (D-Calif.) intoned: “Well, the accounting is in. The CBO has reported that the Republican bill pushes 24 million people out of health care — off of health coverage. This is a remarkable figure. It speaks so eloquently to the cruelty of the bill.”

Yes, nothing is more eloquent in our national discourse than hyperbole, a literary device used so sparingly by politicians. Of course, one can’t forget how Pelosi’s fluid prose described so convincingly the need to pass legislation so one can read and understand it.

And let us not forget Jonathan Gruber, the MIT economist and Obamacare architect, who fiercely defended the objectivity of the CBO when it produced a score of a House bill that validated his worldview. Gruber has called the House GOP bill a “scam” after he said Obamacare’s “lack of transparency [was] a huge political advantage” due to the “stupidity” of the American voter. Indeed, no one holds the everyman consumer in higher esteem than Gruber, a sentinel against scams.

Indeed, no one holds the everyman consumer in higher esteem than Gruber, a sentinel against scams.

Health and Human Services Secretary Tom Price, M.D. offered a different perspective, one informed by practical experience in the medical field.

“The CBO report’s coverage numbers defy logic,” he said, adding that CBO’s “assumptions do not translate to the real world, and they do not accurately estimate the effects of this bill.”

So whose interpretation is correct?

First, let’s assume the CBO is objective and not influenced by politics. Second, it’s equally important to acknowledge CBO’s errors, especially in the area health care policy. Therefore, CBO can be both objective and wrong, or objectively wrong.

CBO tends to overestimate the government’s ability to control costs while underestimating the market’s ability to control costs.

Here’s the critical flaw: CBO tends to overestimate the government’s ability to control costs while underestimating the market’s ability to control costs.

Consider three examples:

  1. CBO overestimated Obamacare’s exchange enrollment numbers by about 120 percent. CBO predicted 22 million Americans would enter exchange plans yet only 10 million enrolled. They overestimated the government’s ability to coerce coverage through the individual mandate.
  2. CBO underestimated Obamacare’s impacts on private health insurers. CBO assumed private health insurers would be profitable under Obamacare but many lost money, leading to the death spiral congressional Republicans predicted. In this case, CBO again overestimated the government’s ability to control costs by telling insurers what to do.
  3. CBO underestimated the market’s ability to control costs within Medicare Part D, the prescription drug benefit. As the Manhattan Institute’s Paul Howard explained in 2013, “Competition and consumer choice help keep costs down … Medicare Part D has cost more than 30 percent less than initially projected by the Congressional Budget Office in 2004 — $304 billion compared with $449 billion.”

If CBO is making similar errors today, Price’s statement is correct while Pelosi and Gruber’s rhetoric is, well, a scam.

The big idea behind the House GOP bill is the idea that the best way to provide care for everyone is to focus on you — the individual. Shifting power away from Washington and toward individuals in a patient-centered system would let market forces and consumer choice drive down costs.

If CBO is making similar errors today, Price’s statement is correct while Pelosi and Gruber’s rhetoric is, well, a scam.

CBO economists would probably agree that the force described in Adam Smith’s “Wealth of Nations” is as Smith described — an invisible hand. Economists have been trying and failing to describe this invisible force for centuries.

So the CBO is being objective. Yet, it is being objective about a narrow slice of reality it can measure and quantify. The real world is more complex and dominated by forces that are real yet unseen.

Just as Obamacare was based on a degree of faith in government, the House GOP plan is based on faith in the free enterprise system. CBO can’t score beliefs. But in the arc of history the cost curve bends down toward capitalism.

That’s why Price is correct. History’s score will be much more favorable to the GOP’s repeal and replace plan than the CBO.

John Hart is the Editor-in-Chief of Opportunity Lives. You can follow him on Twitter @johnhart333.