June 9, 2009
Yesterday, I explained how CBOs cost estimates take into account behavioral responses to proposed new federal laws, including the effects of such responses on spending for federal health care programs such as Medicare and Medicaid. In that discussion, I noted that exceptions to this practice occasionally occur because budget scorekeeping rules specify that only certain types of spending effects can be considered for Congressional budget enforcement purposes. These rules are potentially relevant for estimates of health reform proposals that aim to achieve budget savings by funding new prevention and wellness activities or by reducing waste, fraud, and abuse in Medicare or Medicaid.
Scorekeeping rules were set forth by the Congress in the conference report for the Balanced Budget Act of 1997 and are updated occasionally upon agreement by the full group of scorekeepers, a group that consists of the House and Senate Committees on the Budget, the Congressional Budget Office, and the Office of Management and Budget. The purpose of these rules is to ensure consistent treatment of spending authority, appropriations, and outlays across programs and over time.
When an agency is given significant new legal authority to identify and eliminate program waste, any estimated budget savings is counted, or scored, in assessing the budgetary impact of the legislation that provides that new authority. For example, CBO would estimate savings for a provision that required Medicare to suspend payments to a provider being investigated for fraudulent activity. In other examples, the Congress has occasionally given agencies new authority to use employment data to identify and stop federal payments for individuals who are not eligible for certain benefits.
However, potential cost savings in Medicare from an increase in funding for administrative activities aimed at reducing wasteful spending (rather than new investigative or enforcement authority with the same aim) would not be included in the official score of legislation. In particular, two of the scorekeeping rules prohibit counting any changes in mandatory spending as a result of changes in the amount of mandatory funding for administration or program management, or in the amount of discretionary appropriations for any activity. (A mandatory spending program is one that does not require annual appropriations; discretionary programs are funded each year in an appropriation bill.) The guidelines were adopted in part to avoid situations where hoped-for, but quite uncertain, savings are used to offset near-term, certain spending increases or revenue decreases in the same legislation.
Thus, new prevention and wellness activities funded from discretionary appropriations may generate eventual savings in Medicare or Medicaid, but those potential savings are not credited to the appropriation action as part of the budget scorekeeping process. Similarly, if a bill would increase either discretionary or mandatory funding for activities aimed at reducing fraud or waste, those added funds are included as a cost of the bill, but any potential savings in mandatory spending are not reflected for Congressional scorekeeping purposes. For either of these examples, if the bill becomes law, then the estimated savings in mandatory spending are factored into future CBO baseline projections; and of course, any realized savings in such cases will in fact reduce budget deficits unless they are used for other purposes.