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Phil Rocco on the Democrats’ trick handcuffs
Opponents of health reform have found a friend in the CBO, but it doesn't have to be that way.
When the status quo is powerful, its defenders luxuriate in incoherence. No surprise, then, that the Democrats who oppose an overwhelmingly popular proposal requiring Medicare to negotiate drug prices have stopped making sense. In her lazily written letter to constituents, Rep. Kathleen Rice trotted out the familiar line that the bill was fiscally irresponsible, ignoring the Congressional Budget Office (CBO)’s projection that the legislation would save $700 billion over 10 years.
Careless or not, Rice’s flub is a window into how the cult of the federal budget deficit can kill good policy in Washington. Her letter reads like standard conservative Democrat boilerplate. Typically, one simply has to say how much the CBO says it would cost, and the implication that we cannot afford that number is understood. This isn’t the result of [NPR Voice] partisan polarization. Nor is it simply because of [Mother Jones Voice] aggressive lobbying by deep-pocketed interests, or [Jacobin Voice] the structural power of business to withhold investment. After all, though PhRMA’s lobbyists helped to kill off drug price negotiation in recent years, they are now increasingly on the defensive as public outcry over rising prices has grown; even the Trump administration made bleating, insincere noises about drug prices. Rather, it’s a simple story of how the institutions of government end up bolstering the demands of the most powerful players in Washington.
The CBO exists to serve Congress, and serve Congress it does; just as our elected representatives bend and conform to the demands of their donors, members of Congress and outside groups regularly deploy CBO’s findings against any legislation that actually aims to improve lives, as a handy excuse for any politician looking to get out of their responsibilities to constituents. Its vaunted role as the neutral oracle of the federal budget deficit—and now apparently forecasts of pharmaceutical innovation—is too easily weaponized on behalf of interests like PhRMA, a group described in 2019 by a top-ranking Democratic senator as “the most powerful brute” in Washington. Yet it does belong to Congress, and Congress holds the power to reshape it. The question is whether they want to.
When One Door Closes
Conservative Democrats are used to leaning on the CBO for evidence that proposed legislation “costs too much.” It’s easy enough, especially because many of the office’s most prominent research products only report the costs of proposed legislation. These reports make the “price tag” the headline description of legislation. It’s the $3.5 trillion spending package, not the spending package which, among other things, creates Medicare dental, vision, and hearing benefits, a new child tax credit, and requires the government to negotiate with pharmaceutical companies for the first time. The price tag not only obscures the substantive effects of legislation, it also offers reporters and constituents little opportunity to probe further: “Do the benefits of the legislation outweigh the costs?”
Yet CBO’s cost estimate for the drug-price negotiation bill, H.R. 3, was of little use to drug-industry darlings like Rice, or her colleagues Kurt Schrader and Scott Peters. Rather than offering them the usual pay-for canard, it showed that the savings provided by allowing Medicare to negotiate would more than “pay for” (in deficit-hawk speak) the cost of adding vision, dental, and hearing benefits to Medicare. Indeed, months ago, Pharma’s own scribes leapt on the positive score as evidence that Medicare price negotiation was an inevitability.
Undaunted, however, conservative Democrats instrumentalized another part of CBO’s analysis, which followed the standard cost estimate. While CBO’s memo is titled “Budgetary Effects of H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act,” the memo includes a section on “Effect on Pharmaceutical Research and Development,” which forecasts that allowing for drug price negotiation would mean that “approximately 8 fewer drugs would be introduced to the U.S. market over the 2020-2029 period, and about 30 fewer drugs over the subsequent decade.”
These CBO forecasts—which have become PhRMA’s number one talking point—are riddled with problems. They are based expenditure data derived from surveys of pharmaceutical manufacturers. Yet because manufacturers are not compelled to release any actual cost data, they can easily overstate their investments in R&D as opposed to marketing.
Even if this data were reliable, it says nothing about the value of “foregone” drugs. Though duplicate drugs, and minor tweaks to existing medications, may be juicily profitable for manufacturers, that says nothing of how medically valuable they are—yet the vagueness of CBO’s analysis allows PhRMA to act as if every foregone drug will be the equivalent of the COVID-19 vaccine. Ironically, Wild West drug pricing actually damages innovation by encouraging firms to produce products that generate profits rather than long-shot cures which involve great financial risk. Over the last decade, only about a third of new FDA-approved drugs have provided even moderate improvements beyond what is already on the market.
Finally, the implicit assumption here is that any gaps that do emerge in important cures could not be filled through public investment, even though the federal government spending on basic research leading to pharmaceutical R&D has grown every year since 2016. Even during a period of declining federal funding (2010–2016), federal funding contributed to published research associated with every one of the 210 new drugs approved by the FDA.
But the issue here isn’t the CBO’s working paper. After all, the CBO does these studies at the request of Congress. The problem is how Congress transforms research it requests into a sacred object—like bread and wine into body and blood—whose blessings in this case redound to the benefit of the pharmaceutical industry.
And before you dismiss the Catholic metaphor, just consider how members of Congress talk about the CBO.
“CBO is God around here,” as Chuck Grassley once put it, “because policy lives and dies by CBO’s word.”
The history of health reform, Ron Wyden agreed, “is congressmen sending health legislation off to the Congressional Budget Office to die.”
Few institutions in American life are described with such Alpha-and-Omega portent. Little wonder that the event that seems to have prompted then congressional candidate Greg Gianforte’s 2017 body slamming of a reporter was that reporter asking him about the latest CBO report.
But the CBO is just an organization of 261 full-time employees, many of whom have PhDs, and most of whom spend their time projecting how much federal programs cost. It took members of Congress—together with the Beltway press—to make it into a god.
Following impoundment controversies in the Nixon administration in 1974, congressional policy entrepreneurs attempted to design the CBO as an agency that would counterbalance the power of the president in the budgetary process. It would be an alternative source of information that would be loyal to Congress, checking the assumptions of the Office of Management and Budget as well as other executive-branch organizations. In that role, the CBO frequently came in for criticism, specifically when it called out the Reagan administration’s argument that a massive tax cut would lead to a budget surplus.
During that first decade, few members of Congress would have called the CBO a god. Instead, they frequently slashed the office’s budget, creating half a dozen “near-death experiences,” in the words of former director Robert Reischauer.
But the CBO would soon win an important set of champions. First, the recently created House and Senate budget committees—which relied on the office for leverage over congressional appropriators—defended it from its attackers in the Reagan administration and, later, protected it from Gingrich-led efforts to bleed Congress of any independent legislative support. During the 1980s, increasingly conservative Democrats came to value the CBO as a tool for critiquing the Reagan administration’s policies. The 1984 Democratic platform mentions the deficit over 40 times.
But the strongest defense of the budget office came from an increasing elite preoccupation with the federal budget deficit. While the CBO continued to face cuts throughout the 1980s, mounting deficit pressures gave the office a window to influence the policy process in a new way. As former director Rudy Penner recalled, while the CBO could not take policy positions, he felt it was “safe for me to be against deficits.” In interviews with journalists and public speeches, Penner frequently warned about fiscal irresponsibility, which netted the office “a lot of credibility.”
By the early 1990s, congressional efforts to set automatic deficit reduction targets made CBO’s scores an “obligatory passage point” for legislation, the central standard by which new policy ideas are adjudicated. Following Congress’s creation of Pay-As-You-Go (PAYGO) requirements in the early 1990s, members of Congress began to seek out “under the table guesstimates” of program costs from CBO. As Robert Reischauer recalls, PAYGO had an almost “psychological” effect on members of Congress. Republicans instrumentally used the CBO’s scores to attack Bill Clinton’s national health reform proposal. Democrats attacked Republican tax cuts by citing projections by the CBO of their deficit effects. Members would soon begin shelving or heavily revising costly proposals so as not to “screw up the PAYGO scorecard and piss off their colleagues.”
As the deficit obsession increased, the CBO also became a go-to source of policy information for journalists. My research suggests that citations to the budget office in the New York Times are highly correlated with increases in the federal deficit, and the largest share of op-eds mentioning the CBO in the Washington Post between 1975 and 2018 are focused on deficit effects.
It’s little surprise why the office became such an authority. Not only did the CBO’s reports distill fiscal projections into intelligible prose, many of the assumptions embedded in these reports could not be easily questioned. Congress exempted the budget office, as it had other legislative service agencies, from the Freedom of Information Act (FOIA), meaning that the public could only access a limited range of the budget office’s analytical inputs.
Cost Estimates Rule Everything Around Me (If I Let Them)
But it’s the culture of legislative scorekeeping—rather than the CBO itself—that yields absurd results.
As Robert Saldin highlights in his book When Bad Policy Makes Good Politics, lawmakers obsessed with generating projected “savings” for the Affordable Care Act — making good on President Obama’s commitment to not pass a plan that “adds a dime to the federal deficit” — pursued an ill-fated proposal for a voluntary Long-Term Services and Supports program called the CLASS Act. To anyone who knows anything about how risk pools work, the phrase “Voluntary Long-Term Care Insurance” will sound like the stupidest thing ever. And it is. But in the land of pay-fors, it was a golden opportunity. As designed, the program’s long vesting period meant that CLASS would generate nothing but increased revenue in the first half of CBO’s ten-year legislative scoring window—helping Democrats to make good on their misguided promise of a deficit neutral health reform. But because too few healthy people would sign up for the plans, CLASS would ultimately end up generating an insurance “death spiral” of increased costs and declining participation.
Congress repealed the program within a few years of its creation. (And paying for long-term care is still a disaster for most families.)
This is not an isolated case. In the first few months of the COVID-19 pandemic, House Speaker Nancy Pelosi explicitly rejected including automatic stabilizer provisions in relief legislation—which would have allowed the federal government to tie benefit levels to the duration of the crisis rather than arbitrary cut-off dates. Her reasoning? The CBO’s scorekeeping rules for automatic stabilizers, which inflated the total price tag for the legislation beyond Pelosi’s proposed $3 trillion ceiling. “If we put every good idea people wanted in the bill, it would be an $8 trillion bill,” as one staffer put it.
And Democrats’ obsession with a “good score” is reportedly one reason why they have delayed—to their own electoral disadvantage—the start date for the expansion of Medicare dental, vision, and hearing benefits they are proposing for eight (yes, eight) years. Consider that Medicare parts A and B were initially implemented in 11 months. In 1972, Congress required the new End-Stage Renal Disease Benefits take hold in one year. Even Medicare Part D and the Children’s Health Insurance Program took less than three years to implement. The entire Affordable Care Act took four.
By contrast, Republicans seem to have realized that gods that fail can be dethroned, or at least ignored. When the CBO’s static score showed significant deficit effects of their regressive tax cuts, and when the Joint Committee on Taxation’s “dynamic score” didn’t look much better, Republicans simply argued that the scores weren’t sufficiently dynamic, and ignored them. And voila: the legislation passed and the rich got richer, and they continue to get richer as the result of the 2017 Tax Cuts and Jobs Act, whether Republicans hold Congress or not.
It helps, of course, to have a legislative coalition that is committed to winning on the floor.
Taking Off the Trick Handcuffs
Advocates of any positive change in U.S. health policy must grapple with the CBO. But it’s wrong to frame the budget office itself as the problem.
Never forget that the CBO is a legislative support agency created, funded, and directed by Congress. As Republicans showed during the passage of the Tax Cuts and Jobs Act, it is only as powerful an obstacle as its audience allows it to be. If Congress asks it to, it can even perform analyses that reveal a fuller picture of how public policy works.
Congressional committees do not have to accept the analytic landscape they are presented with. They could easily press the CBO to formally analyze benefits of single-payer healthcare. CBO can and does forecast policy effects other than costs, such as the number of people who receive health insurance. Yet these analyses tend to be politically significant only when proposals to repeal existing benefits are introduced, as we saw back in 2017. There is no reason why Congress could not ask for a more comprehensive analysis of the benefits of major pieces of health policy. In the end, it’s Congress’s responsibility—not the CBO’s—to weigh the costs and benefits and make decisions.
Similarly, when Congress and the press refuse to take a hard look at commissioned reports, they miss arbitrary assumptions and analytical choices. Consider the CBO’s February 2021 study of the effects of increasing the minimum wage to $15 an hour would cause 1.4 million Americans to lose their jobs. While major news sources treated the report as the official word on the matter, they ignored that the CBO decided to weight studies with larger job losses more heavily in its analysis, and chose not to examine a variety of high-quality studies on policy tradeoffs included in a systematic review commissioned by the British Treasury. Among other things, it included an initial study of the Seattle minimum wage experiment which found evidence of major job losses, but excluded the authors’ follow-up study, which produced more positive results.
Members of Congress aren’t handcuffed to the current scorekeeping regime, or even to the results of a single commissioned study. These institutions are, at best, trick handcuffs: congressional coalitions create them and can alter them when they want to. Or, more appropriately, when they receive intense, cross-cutting pressure to do so. And when these institutions hobble the thriving of large majorities of Americans, we have a responsibility to scrutinize how they work, to question their assumptions, and demand change.
The stakes of health policy are too high to leave it to the high priests.
Phil Rocco is an Associate Professor at Marquette University.