Does the Congressional Budget Office Underestimate Savings from Reform? A Review of the Historical Record

When the Congressional Budget Office (CBO) "scores" legislation, or assesses the likely cost impact, it requires substantial evidence that a cost-saving initiative has historically achieved savings. The agency has difficulty addressing the impact of multiple changes made simultaneously without historical precedent where there is an interaction effect among proposed changes. This study examines CBO scoring of major reform legislation enacted during each of the past three decades, including the prospective payment system for hospitals in the 1980s, the Balanced Budget Act of the 1990s, and the Medicare Modernization Act of 2003. In contrasting actual spending with predicted spending, CBO, in all three cases, substantially underestimated savings from these reform measures.