In a letter to Senator Orrin Hatch (R-UT), the Congressional Budget Office reports that tort reform could save about $11 billion in national health care costs in 2009, or about 0.5 percent of national health care spending.

This letter responds to your request for an updated analysis of the effects of proposals to limit costs related to medical malpractice (“tort reform”). Tort reform could affect costs for health care both directly and indirectly: directly, by lowering premiums for medical liability insurance; and indirectly, by reducing the use of diagnostic tests and other health care services when providers recommend those services principally to reduce their potential exposure to lawsuits. Because of mixed evidence about whether tort reform affects the utilization of health care services, past analyses by the Congressional Budget Office (CBO) have focused on the impact of tort reform on premiums for malpractice insurance. However, more recent research has provided additional evidence to suggest that lowering the cost of medical malpractice tends to reduce the use of health care services. CBO has updated its estimate of the budgetary effects of proposals for tort reform to reflect that new information.

Sen. Hatch issued a statement, “Tort Reform Key to Affordable Healthcare“: ““I think this response from the CBO confirms that there is a growing problem regarding the costs of health care lawsuits. In years past, the CBO mainly focused on the cost doctors’ malpractice insurance premiums and did not adequately address the tendency of doctors to use ‘defensive medicine,’ which does little to promote patient health and serves only to help doctors avoid being sued.”

• Deseret News, “CBO says Hatch is right, tort reform could save $11 billion“
• Washington Post, “CBO: Medical Malpractice Reforms Could Save Up to $54 Billion“
• American Association of Neurological Surgeons and Congress of Neurological Surgeons, “Congressional Budget Office Confirms Medical Liability Reform Will Save Billions“
• Fox News, “Tort Reform Reduces Federal Deficit, Congressional Analysts Say“

CNN reports: “The Senate Finance Committee will vote on its long-awaited health care bill next Tuesday, Majority Leader Harry Reid announced on the Senate floor Thursday.”

Charles Krauthammer on Fox News All Stars last night did a good job in describing some of the presentational ploys used in the bill’s depiction by Congress. Via National Review Online, The Corner:

Two items here. One of them is the $120 billion assumed of income from what are called “fees” of the big players in health care — the health insurers, the drug companies, the guys who do diagnostics and who produce the medical equipment.

 

The fee is a tax, and the tax, $120 billion, is going to end up out of your pocket and mine, because every penny of it will be in higher insurance, higher costs for drugs, for stents — any kind of medical devices — and for diagnostics. Everybody will pay.

 

But it’s hidden. It is a cowardly way to do a tax. You do it on the industry and it is passed on.

 

Secondly, there are individual mandates. People are going to be shelling out a huge amount every year on insurance, and those who don’t are going to have to pay a fine, also a tax, but under another name.

 

There are huge costs in here, which are all hidden, and that’s why it looks OK.

As expected, today the Office of Management and Budget announced that its 10-year estimate of the federal deficit had risen from a total of $7.2 trillion to $9 trillion. From OMB Director Peter Orszag, writing on the Mid-Session Review:

[With] regard to the out-year deficits, the changes are primarily driven by changes in our economic assumptions. In line with the current consensus among professional forecasters, the Administration’s economic projections show that we inherited a deeper recession than projected in February. These revisions are based on new data on the severity of the recession that weren’t available last winter.
As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection.  Although these effects help to ameliorate the economic downturn by stimulating demand, they also lead to higher medium-term deficits both directly and indirectly (through higher interest costs on a higher level of public debt). Over the next 10 years, the net impact is to add $2 trillion to the projected deficit, compared to our last projection made based on February’s economic assumptions. That brings the projected 10-year deficit for 2010-2019 to $9.05 trillion – in line with CBO’s June projection.

• Washington Post, “White House Sharply Increases Projections of Future Deficits“
• Reuters, “SCENARIOS: Impact of U.S. budget reports“

Yet the CBO today reduced its 10-year deficit forecast to $7 trillion. As Fox News summarizes:

In a reflection of how colossal Uncle Sam’s credit card balance has become, two top budget offices on Tuesday gave long-term deficit projections that were $2 trillion apart.

The discrepancy underscored how difficult it is to peg the path of the U.S. economy. But with a $2 trillion margin-of-error, it also showed how unwieldy the figures have become.

The Congressional Budget Office predicted deficits over the next decade will add up to $7.1 trillion. The White House Office of Management and Budget earlier increased its 10-year-budget projection to more than $9 trillion, an increase of about $2 trillion.

Here’s the CBO’s latest Budget and Economic Outlook. The opening paragraph is a startler:

The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2009 will total $1.6 trillion, which, at 11.2 percent of gross domestic product (GDP), will be the highest since World War II.

Somebody better hurry up and determine which “moral equivalent of war” we happen to be fighting.

Washington Post, “Lawmakers Warned About Health Costs“:

Congress’s chief budget analyst delivered a devastating assessment yesterday of the health-care proposals drafted by congressional Democrats, fueling an insurrection among fiscal conservatives in the House and pushing negotiators in the Senate to redouble efforts to draw up a new plan that more effectively restrains federal spending.

Washington Times, “CBO: Health care reform to increase federal cost“:

Congress’ budget watchdog warned Thursday that Democrats’ health care bills would not lower skyrocketing costs and would drive up government spending, undermining one of President Obama’s chief arguments for the overhaul.

Washington Examiner, “Obamacare will break the bank.”

Meanwhile, in Bakersfield…

The point being that not everything in America revolves around a CBO analysis, even one that destroys the case for a sweeping health care bill. The rest of the country has other things on its mind, including the effect of the skills gap on crop dusting.

A useful exercise for Inside-the-Beltway types, yours truly included, is to scroll through the front pages of newspapers posted every day at the Newseum’s website. The world does not revolve around Washington. The Quilter’s Hall of Fame kicked off its threefold anniversary Thursday in Marion, Ind. Darn right that’s front-page news.

That said, CBO Director Elemendorf’s comments to the Senate Budget Committee are still well worth reading. The word “unsustainable” is used.

White House advisor David Axelrod and Sen. Charles Grassley (R-IA) appeared on ABC’s This Week this morning to discuss health care and the carbon cap-control-command-and-trade legislation.  Sen. Grassley, ranking Republican on the Senate Finance Committee, was very good on the Waxman-Markey bill. Host George Stephanopolous cited a CBO analysis and supporters’ talking point to argue that the bill did not represent that big of an economic hit. Grassley:

I’ll tell you, earlier this year, we had economists telling us that when you filter all of these increases in energy through every step of the economy, manufacturing a product or whatever services might come, we have come out with about $3,000 for a family of four.

Now I won’t argue $175 versus $3,000 because that’s not the most important issue. You’ve got to look at what is happening to our economy if we put this very strong tax on energy. The people that have been complaining for 10 years about the outsourcing of manufacturing jobs to China are the very same ones pushing cap and trade.

And you’re going to find signs on manufacturing doors, if this bill passes, that says moved — gone to China. So what we have to do is make sure China, the number one emitter of CO2, not the United States, China is. And India right along with them.

We’ve got to have an international agreement so that we have a level playing field for American manufacturing so we don’t outsource any more jobs. This should be done in a way that affects China the same way it affects the United States.

Because if the United States moves ahead by itself, we’re not only going to lose those jobs, but the point is, after 30 or 40 years, we’re going to reduce CO2 by less than 1 percent.

Speaking of the CBO, its economic projects stop at 2020, just as the tougher anti-energy provisions really kick in. Seems like an inadequate effort.

Heritage  had other analyses challenging the CBO’s study:

24 June 2009
CBO Grossly Underestimates Cost of Cap and Trade
By David Kreutzer, Ph.D., Karen Campbell, Ph.D., and Nicolas D. Loris
WebMemo #2503
The CBO analysis of Waxman-Markey fails to take into account all the adverse effects that will ripple through the U.S. economy if cap and trade becomes law.

24 June 2009
The High Cost of Cap and Trade: Why the EPA and CBO Are Wrong

From The Financial Times, “Deficit disorder“:

The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years. Even on its relatively optimistic assumptions for economic growth, moreover, the CBO predicts national debt will double to 82 per cent of GDP in the next decade – a level not seen since the second world war.

This would push the US close to the chronic debt levels seen in Japan and Italy. “People used to talk about America’s long-term fiscal crisis,” says Douglas Elmendorf, head of the CBO. “That crisis is now.”

Once merely a worthy subject of concern, America’s fiscal outlook has rapidly become the object of widespread alarm. “Aside from weapons of mass destruction and terrorism, America’s fiscal situation is the most dangerous challenge facing the country,” says Mr Gregg. “Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America’s global leadership role.”

(Hat tip: Instapundit.)

From the Congressional Budget Office’s new report, “The Budget and Economic Outlook: Fiscal Years 2009 to 2019“:

Under an assumption that current laws and policies regarding federal spending and taxation remain the same, CBO forecasts the following:

• A marked contraction in the U.S. economy in calendar year 2009, with real (inflation-adjusted) gross
  domestic product (GDP) falling by 2.2 percent.
• A slow recovery in 2010, with real GDP growing by only 1.5 percent.
• An unemployment rate that will exceed 9 percent early in 2010.

And the eye-popping news, which takes the wind out of the stimulus sails:

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit.

In CBO’s baseline, the deficit for 2010 falls to 4.9 percent of GDP, still high by historical standards. 

More …

• USA Today, “Budget Deficit to Reach $1.2 Trillion“
• Bloomberg, “CBO Said to Project Deficit This Year Will Exceed $1 Trillion“
• Washington Post, “Obama: Trillion-Dollar Deficits ‘for Years to Come’“

CBO Director Peter R. Orszag does a nice job using the budget office’s blog site for updates about his presentations, speeches, testimony, etc. (Although…Director Orszag, put your name on the home page! It’ll help the spelling-challenged.) This post, “Lecture on health care policy at Stanford,” pointed to a very interesting talk at the Center for Health Policy and the Center for Primary Care and Outcomes Research at Stanford University, with lots of discussion of the causes of rising health care costs.

My remarks touched upon a theme that I will be discussing in more detail in other lectures later this fall: that just as the field of economics suffered because it mostly ignored psychology for too long, so too much of medical science and health policy has been largely ignoring the crucial role of expectations, beliefs, and norms. Perhaps the most compelling example involves the placebo effect, which tends to be dismissed as a statistical annoyance rather than examined in and of itself as a powerful force — often more potent empirically than the ‘medical’ intervention formally being studied.

Orszag’s slides are here .