The Number-Cruncher-in-Chief

"The history of health reform," explains Sen. Ron Wyden of Oregon, "is congressmen sending health legislation off to the Congressional Budget Office to die." That's not the history you often hear. Budget analyses do not make for gripping headlines. Editors want heroes and villains, narrative arcs and telling anecdotes. They do not want numbers. They do not want bureaucracies. But numbers, and the bureaucrats who decide them, can be quietly decisive in whether major policy reform lives or dies.

In the coming years, no bureaucrat will be as decisive as Peter Orszag -- the former director of the Congressional Budget Office who is now the head of Barack Obama's Office of Management and Budget -- and few bureaucracies will be as important as the CBO and the OMB. For every major policy and legislative fight, those organizations will decide the Number: the official price tag of a government program. And you can't do anything without the Number.

The work of government is fundamentally the work of raising money and spending it. But the basic questions -- how much money taxes will raise and how much money policies will cost -- are unanswerable. Imagine the difficulty of trying to price out a health-care plan that only exists on paper. What medical technologies will emerge in coming years? Will there be a recession that forces more Americans onto government subsidies? Will doctors stop overprescribing antibiotics? Will the next flu season be a bad one? Enlightened bureaucrats can take their best guess, but it is only a guess. Even so, you need the Number. Without the Number, you can't put together a budget. If you can't put together a budget, you can't run a government. So Washington operates atop a tacitly agreed-upon imprecision: The Numbers may be wrong, but they need to be accepted. Which means someone credible has to be responsible for them. In Congress, that someone is the CBO.

"In this town," says Henry Aaron, a senior economics fellow at the Brookings Institution, "it's not infrequent to hear people say it doesn't make any difference what it really costs. It only matters what CBO says it costs." It's the world's most consequential guessing agency. And over the past two years, Peter Orszag has been trying to ensure that it guesses in favor of health reform, rather than against it. the congressional budget office is the byproduct of a heated dispute between Richard Nixon and the 93rd Congress. Nixon wanted more federal money for defense than Congress was willing to appropriate. So he simply refused to spend the money Congress had earmarked for its own priorities. In budget lingo, he "impounded" it. By 1973, Nixon had held up about $15 billion in spending. Congress was not amused, and it passed a bill called the Congressional Budget and Impoundment Control Act of 1974. The legislation outlawed Nixon's gambit and, as a further gesture of disgust with the administration's chicanery, vastly strengthened Congress' institutional capacity to influence the budget.

Until then, Congress' role in the annual budget was responsive. The president proposed, and Congress critiqued. In 1974, that changed. The bill created the Budget Committees, ensuring, for the first time, that Congress would build a yearly budget of its own, asserting its priorities directly. That meant Congress would need to determine the cost of its own programs. Thus, it created the Congressional Budget Office.

Alice Rivlin, now a senior fellow at the Brookings Institution, was the first director of the CBO. But it wasn't an easy hire. "The Congress did something that was not very smart," Rivlin says, "and that they never did again. They had two search committees for the director, one in the House and one in the Senate." Rivlin was the Senate's choice. The House preferred Sam Hughes, then the deputy controller at the Government Accounting Office. "The chairman of the House Budget Committee was a congressman from Oregon named Al Ullman," Rivlin recalls. "And he was very committed to Sam Hughes, and I think rather sexist. He said over his dead body was a woman going to run this organization. People said things like that in those days."

A months-long standoff ensued, with the Senate refusing to back down from Rivlin, and Ullman refusing to let go of Hughes. "Finally it got settled in a very bizarre way," Rivlin laughs. Wilbur Mills, the powerful chairman of the House Ways and Means Committee, became involved with an Argentine stripper named Fanne Fox. One night, the police pulled over Mills and Fox for speeding. Fox fled the vehicle and jumped into the Tidal Basin. Mills still managed to win re-election the next year. But soon after, he was spotted stone drunk at Fox's burlesque show, and the resulting uproar forced him from Congress. Ullman ascended to chair of the Ways and Means Committee, and his successor on the House Budget Committee, Brock Adams, lacked his strong attachment to the CBO search process. Rivlin was confirmed.

It was an important personnel decision. Embedded in the standoff between the House and the Senate were two different visions of what the agency should do. The House wanted the CBO to focus almost exclusively on scoring policies and creating budget programs. "More number crunching," Rivlin says. The Senate agreed but wanted the CBO to go further: Rather than acting as a passive producer of cost tags, the organization the Senate envisioned would use its considerable analytical expertise to help legislators build cost-effective programs that would, as Rivlin puts it, tell Congress "what the options are, what it would cost, and what [it would] accomplish."

This small change in mission -- allowing the CBO not only to evaluate programs but also make suggestions on their architecture -- has given the CBO a quiet but firm influence on the congressional process. How much a bill costs is central to whether it gets enacted. And not just how much it costs but how much the CBO says it costs. The Number.

The CBO's most famous -- or infamous -- intervention in a legislative battle was its estimate of the 1994 Clinton health-care proposal. "The major issue," recalls Robert Reischauer, then director of the CBO, "was not how much it cost but whether the premiums that you were charged as an individual were governmental in nature and would thus be in the budget." Reischauer and the CBO decided they were. The premiums paid by every American would be included in the Number. This meant the Number was huge -- vastly larger than the price tag previously affixed to the proposal by the Clinton administration. Hearing the news, one senior administration official moaned to The Washington Post, "The Republicans will jump all over this and say we're increasing the budget by 25 percent and putting through the biggest tax increase in history." The New York Times editorialized that "the opponents of President Clinton's health care bill think they have struck political gold in an analysis of the bill just released by the Congressional Budget Office."

They were right. Donna Shalala, Clinton's secretary of health and human services, called the ruling "devastating." But through all of this, Clinton's bill never changed. Nor did the amount individual Americans would pay. Only the Number changed. And it wasn't an obvious decision that the CBO made. Indeed, even some of the CBO's leading lights questioned the judgment. "In all honesty," says Rivlin, who by that time was head of the White House Office of Management and Budget, "I wasn't sure my colleagues had done it right. I mean there are mandated expenditures such as if you have to put a handicap ramp in front of your building. That's a mandatory expenditure, but that's not a tax." But it didn't matter. That was the Number, and it helped kill the bill.

The CBO, however, can help a congressman change the Number. The office can offer program analysis to guide congressmen toward more cost-effective policy options. The Clinton plan entered the CBO process late in its lifecycle and couldn't be changed. But another model was on exhibition last May, when Sen. Wyden held a press conference to announce that his bill, the Healthy Americans Act, had undergone "preliminary analysis" by the CBO (and the Joint Tax Committee) and was found to be revenue neutral in two years and revenue positive in four. When his staffers passed out the analysis, it came with a sheet stapled to the back detailing changes to the legislation. Wyden, in consultation with the CBO, had rebuilt portions of the bill in order to achieve the Number he needed. And he got it. "It was extremely valuable for our efforts to have [such a favorable] CBO score," he told me.

This process is informal but important. "We've always tried to be pretty open with staff," Reischauer says. "CBO won't commit to anything, but they'll offer helpful advice, and they've always tried to do that. They've probably gotten better through time. At the beginning of CBO, there wasn't a lot of communication with congressional staff. There did seem to be an element of gotcha. They'd send a bill, and we'd nail them."

***

Peter Orszag turned 40 in December, and he looks 10 years younger than that. He has black hair, clear glasses, and pointed ears that lend his face an elfish quality. He's a country music enthusiast, and he has a sly sense of humor: He once quoted an Oliver Wendell Holmes poem in the footnotes to a CBO analysis of infrastructure spending, because David Brooks complained that budget analysis lacked sufficient "romance."

Orszag made his name in the late years of the Clinton administration as a hotshot staffer for the Council of Economic Advisers. He was soon tapped to run the Hamilton Project, which was understood by most to be former Clinton Treasury Secretary Robert Rubin's government-in-exile. He is, in other words, a member in good standing with D.C.'s economic elite. It's the sort of background usually associated with self-appointed wise men who advise that fiscal responsibility requires that we cut Social Security benefits, means-test Medicare, and limit our ambitions to expanding children's health insurance. Orszag, however, has been leveraging his establishment credentials to wage a quiet war on this limited vision of "fiscal responsibility." In 2005, he was a key economist in the fight to protect Social Security against George W. Bush's privatization scheme. In December 2006, he was nominated by a bipartisan search committee to direct the Congressional Budget Office, replacing the outgoing director, Doug Holtz-Eakin.

From his perch at the CBO -- which is to say, as one of the few individuals charged with safeguarding the federal budget -- he's been arguing that fiscal responsibility means, above all, serious health-care reform. This is a surprisingly subversive point. Fiscal responsibility has come to mean something very specific. As Robert Samuelson wrote in a Washington Post column last October, we face a "heavily mortgaged future," and the only answers are to reduce Social Security and Medicare costs. And you can do that in three ways: "Increase eligibility ages; trim benefits; and require recipients to pay more for their Medicare benefits (higher premiums, co-payments or deductibles)." The problem, in other words, is overly generous spending. And the answer is austerity.

In testimonies, speeches, and blog posts (yes, he kept a blog at the CBO), Orszag has emphatically rejected that premise. He says that comprehensive health reform is the "key to our fiscal future." He says that Social Security is not the problem and neither are the baby boomers. The impact of aging is only a small slice of the increase in health costs. The real driver is technology: We spend more because we're buying more expensive stuff. Left unchecked, this trend will eventually consume the federal government, with federal spending alone growing to 37 percent of gross domestic product by 2050. The answer is to reduce health-care costs, but you won't get there by cutting benefits. The political system isn't set up for that.

Orszag, however, sees another path. He emphasizes a striking chart from the Dartmouth Atlas Project that shows that spending on Medicare beneficiaries varies by tens of thousands of dollars across the states but that higher spending is not connected to better outcomes. Spend more, get the same. In this, he says, there is a substantial "embedded opportunity" to reduce costs without reducing the quality of care. "There is a huge amount of care that is provided that is unnecessary," Orszag says. "The Dartmouth folks say as much as 30 percent, others say between 15 percent or 10 percent, and fine, that's huge. The question is how we get out of that."

As the bailout was winding its way through Congress this fall, it became common for columnists and news anchors to argue that the presidential candidates would have to trim their agendas in response. At the first presidential debate in Mississippi, moderator Jim Lehrer asked, "What are you going to have to give up, in terms of the priorities that you would bring as president of the United States ... to pay for the financial rescue plan?" A few weeks later, at the third presidential debate, moderator Bob Schieffer said, "We found out yesterday that this year's deficit will reach an astounding record-high $455 billion. Some experts say it could go to $1 trillion next year. Aren't you both ignoring reality? Won't some of the programs you are proposing have to be trimmed, postponed, even eliminated?"

But Orszag was having none of it. "Many observers have noted that addressing the problems in financial markets and the risks to the economy may displace health care reform on the policy agenda," he wrote on his blog. Orszag went on to argue that rising health costs threaten the nation's very solvency. If they continue to grow, investors will no longer be willing to buy Treasury bonds at low rates. And if that happened, the government would lose its ability to mount the sort of costly rescue operations that have kept this crisis from turning into a calamity. "So if you think the current economic crisis is serious," concluded Orszag, "and it is, imagine what it would be like if we didn't have the ability to undertake aggressive and innovative policy interventions because creditors were effectively unwilling to lend substantial additional sums to the Federal government."

Behind Orszag's economic jargon was a startlingly aggressive message. He was essentially accusing those who would delay health reform of bringing a Zippo and a can of kerosene to the federal budget. "I have not viewed CBO's job as just to passively evaluate what Congress proposes," he tells me shortly before his appointment to the OMB, "but rather to be an analytical resource. And part of that is to highlight things that are true and that people may not want to hear, including that we need to address health-care costs." Orszag also quietly worked to make the CBO a more surefooted ally of those who would attempt health reform. This meant beefing up its analytical capabilities on the issue by adding 20 full-time health analysts (bringing the total number to 50) and aggressively reorganizing the division's management structure so more experienced supervisors are overseeing the health-policy analyses. It also meant addressing the CBO's occasionally dysfunctional relationship with Congress.

Thinking back to the furor over the Number on Clinton's health-care plan, Orszag says, "I think there were two things about that decision. One was the decision itself, which was viewed as being the final nail in the coffin. The second was that it was a surprise. It may well still be the case that you, senator, or you, congressman, don't like the answer we give. But we can try [to] make sure you're not surprised by it."

Erasing the element of surprise means ripping the curtain back from the CBO's scoring process. "The goal is to provide more guidance to policy makers," Orszag says. "When I took office, one of the complaints that people had was that the CBO process was like a game of Battleship. They'd say 'A14,' and we'd say 'hit!' And they'd say 'B42,' and we'd say 'miss!' And they had no idea why. So I'm trying to take that shield down and provide a bit more information on what the dials are." That impulse lies at the heart of two books of heath-care policy options the CBO released in December. The books will serve as a guide to the assumptions the CBO will build into its health-care scoring model. They will be how-to guides, in other words, for achieving the perfect Number.

***

If the CBO was formed to strengthen Congress' hand on the budget, the Office of Management and Budget is the president's weapon -- not just against Congress but against the federal bureaucracy. The OMB predates the CBO, and in many ways, served as its precursor. But under Ronald Reagan, the OMB became more than a simple budget analysis agency: It became the vehicle by which the executive wielded authority over all the elements of the federal government that he could affect without congressional approval. With the help of OMB Director David Stockman and a few executive orders, Reagan used the office not only to radically restructure the federal budget but to act as the government's regulatory gatekeeper. The OMB's Office of Information and Regulatory Affairs (OIRA), which was established a month before Reagan's inauguration, assumed additional powers and was soon "reviewing" 2,000 to 3,000 regulations a year. (By contrast, OIRA only reviewed 500 to 700 regulations a year under Bill Clinton.) It was an arrogation of power so sweeping that a nonprofit organization called OMB Watch was formed just to, well, watch it, which is what it does to this day.

But Stockman's efforts also discredited the OMB as a neutral source of budget analysis. When Stockman plugged Reagan's tax-cut proposal and defense-spending increases into the OMB's economic model, the computer projected yawning deficits. So Stockman reprogrammed the computer. The new model deployed the absolute cutting edge in supply-side fantasizing. Reality disagreed, and the expected deficits quickly manifested. The lesson most observers took was that the OMB, by virtue of serving a single master (the president), is more vulnerable to politicization than is the CBO, which serves the many masters of Congress, even though the CBO's director is effectively appointed by the majority party.

If the OMB's analyses aren't sacrosanct outside the executive branch, however, the agency is still responsible for the Number inside the executive branch. The president must propose a budget to Congress, and that budget must be built out of the priorities and recommendations of dozens of competing agencies. The OMB assesses the cost of all those items, giving each its Number, and makes recommendations to the president on which to choose. In that, it differs sharply from the CBO. The CBO's influence on policy is indirect, as members of Congress work to understand its guessing formula and construct their bills accordingly. But the CBO never makes recommendations among competing options. A chairman cannot ask the director to identify the best path forward. Conversely, the OMB, and its director, offer explicit advice to the president. If the CBO is like using the software Quicken to better understand and manage your finances, the OMB is like a financial adviser who simply tells you what to do with your money. "Some OMB budget directors might meet every morning with the president," says Reid Cramer, a former OMB analyst. "It's a very inner-circle position."

***

On Nov. 25, Barack Obama held a press conference to announce that Orszag would be leaving the CBO and ascending to that inner circle. The promotion came because of, not in spite of, Orszag's crusade on behalf of health reform. "Peter has been one of our nation's leading voices on budgetary issues," Obama said. "As director of the Congressional Budget Office, he re-energized and reinvigorated the agency, while shifting its focus to confront the health-care crisis that is not only a cause of so much suffering for so many families but a rapidly growing portion of our budget and a drag on our entire economy."

Implicit in the announcement was that the elevation of Orszag represents a rare opportunity to align two of the government's most powerful agencies in service of major reform. "Peter doesn't need a map to tell him where the bodies are buried in the federal budget. He knows what works and what doesn't, what is worthy of our precious tax dollars and what is not," Obama said. Orszag knows, in other words, how the CBO will make its guesses. Thus, he can advise Obama on how to construct the legislation most likely to pass unscathed through the CBO's scoring process.

"It is said that a nation's budget reflects its priorities," Obama continued. "I believe that is true. And I know that Peter will bring to his work at the OMB a set of priorities that I -- and the American people -- share." If Orszag can make Congress share those priorities, too, that will indeed be a story worthy of the headlines. It will even have a hero.

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