Gas prices braking drivers

Citing a 100% increase in U.S. gasoline prices (to $3 per gallon) since 2003, the Congressional Budget Office (CBO) has published a study on gas price effects on driving and car sales. CBO analyzed data from California highways and sales of new and used vehicles from 2003 to 2006.

Among the findings:

• Freeway motorists are making fewer trips and driving more slowly
• Market share of light trucks (including SUVs and minivans) began to decline in 2004
• Used vehicle prices have shifted, with prices declining for larger models and rising for fuel-efficient cars

CBO notes two policy tools that encourage the use of more-fuel-efficient vehicles: the federal corporate average fuel economy (CAFE) standards and federal and state gasoline taxes.

Higher prices for gasoline affect both types of policies. By increasing the market demand for fuel-efficient vehicles, higher gasoline prices reduce the economic costs--to manufacturers and to consumers--of achieving stricter CAFE standards. Also, with higher gasoline prices, the average gasoline tax--or any given increase in that tax--is now a smaller share of the price of gasoline than it was in the past.

Effects of Gasoline Prices on Driving Behavior and Vehicle Markets (pdf, 58pp/828kb), January 2008

Recent CBO reports

Testimony on Approaches to Reducing Carbon Dioxide Emissions       (pdf, 16pp/116kB), Nov. 1, 2007

The Director of the Congressional Budget Office (CBO) testified before the House Budget Committee on reducing CO2 emissions. He advocated an incentive-based approach as more economically efficient than "command-and-control" policies. Two main incentives would be taxes (to regulate the price of emissions) or a cap and trade system (to regulate the quantity of emissions). Of the two, a "well-designed tax would yield higher net benefits."


The Long-Term Outlook for Health Care Spending
      (pdf, 35pp/552kB), November 2007

This study gives CBO's projections of health care spending over the next 75 years under current federal law. In view of rising health costs, CBO assumes that employers, households, and insurance firms, to avoid reducing consumption of other goods and services, will change their behavior, e.g., higher cost sharing, increased utilization management, reduced insurance coverage by employers, and greater scrutiny of new technologies.

See related FR post, "Medicare and nursing homes" (8/1/07)


Long-Term Unemployment (pdf, 34pp/476kB), Oct. 2007

Unemployment lasting more than six months has increased. This report examines such long-term unemployed workers during 2001-2003 - their characteristics, sources of income, and subsequent activities.

Medicare and nursing homes

Rising costs in Medicare, Medicaid, and other federal health-related programs represent the central long-term fiscal challenge facing the nation. The Congressional Budget Office (CBO) is therefore increasingly focusing on analyzing the causes of those rising costs and potential policy responses.

Thus begins the preface to a recent report from CBO on Medicare payments to skilled nursing facilities (SNF). In this study, in calculating how Medicare's payment rates impact the volume of SNF services, CBO used two separate analyses: geographic-level and provider-level. In the geographic-level analysis, data came from 3,436 hospital service areas. In the provider-level analysis, volume was the number of Medicare-covered SNF days provided by a facility in a year. Changes in payment rates were calculated using "a Laspeyres-type index" and a mix of patients in the base year and the following year.

The paper found that the volume of SNF services varied positively with payment rates. At the provider level, SNF volume responded only to increases in payment rates, while at the geographic level, SNFs responded to both increases and decreases in payment rates.

Background Paper: The Impact of Medicare's Payment Rates on the Volume of Services Provided by Skilled Nursing Facilities (pdf, 32pp/732kB), July 2007

Federal R&D

The Congressional Budget Office (CBO) and the Government Accountability Office (GAO) each recently issued a report relating to federally funded research and development. The CBO report looks at federal support generally for R&D, while the GAO report analyzes the dissemination of research from three agencies.

According to the CBO report, in FY2007 $137 billion was budgeted for federal R&D, and tax preferences have provided incentives for R&D in the private sector. The report reviews trends in federal R&D support, assesses the government's role in R&D, evaluates the results of federal R&D funding, and looks at tax preferences for R&D.

In light of concerns that some researchers are being restricted from sharing their findings on controversial topics, the GAO report examines the policies for dissemination of research of three agencies: the National Aeronautics and Space Administration (NASA), National Institute of Standards and Technology (NIST), and National Oceanic and Atmospheric Administration (NOAA). Dissemination occurs through such avenues as publications, presentations, press releases, and media interviews, the latter two being more problematic. GAO recommends clarifying media policies, ensuring an appeals process for dissemination decisions, and providing training for those policies.

Federal Support for Research and Development (pdf, 42pp/824kB, from CBO), June 2007

FEDERAL RESEARCH: Policies Guiding the Dissemination of Scientific Research from Selected Agencies Should Be Clarified and Better Communicated, GAO-07-653 (pdf, 102pp/2.93MB, from GAO), May 17, 2007 (released June 18, 2007)

Children's health insurance

The Congressional Budget Office (CBO) has published a report on the State Children's Health Insurance Program (SCHIP), as Congress considers its reauthorization this year. SCHIP was established by the Balanced Budget Act of 1997, P.L. 105-33 (pdf), Title IV, Subtitle J, chap. 1 (111 Stat. 552 et seq.), which provided funding for SCHIP from 1998 to 2007.

According to the report, SCHIP provides medical coverage to children in families with income that is low but too high for Medicaid. It is federally and state funded and administered by the states within federal guidelines. In 2006, SCHIP covered 6.7 million children, at a cost of $4.8 billion in federal funds.

CBO lists possible changes to SCHIP for Congress to consider in reauthorizing the program:

• Intensifying efforts to enroll uninsured, eligible children
• Redefining the target population
• Changing the allocation formula for state funding
• Modifying the rules for redistribution of unspent funds
• Changing state matching rates
• Modifying benefits states are required to provide

The State Children's Health Insurance Program (pdf, 31pp/1.9MB), May 2007

Unfunded mandates

One of the provisions of the Unfunded Mandates Reform Act (UMRA) of 1995, P.L. 104-4 (pdf, 25pp/144kB), requires the Congressional Budget Office (CBO) to inform Congress about the costs of mandates in proposed legislation. CBO has issued a report on its 2006 UMRA actions.

Under UMRA, a mandate is any provision in legislation, statute, or regulation that would impose an enforceable duty on state, local, or tribal governments or the private sector, or that would reduce or eliminate the amount of funding authorized to cover the costs of existing mandates

Of the 321 public laws enacted in 2006, 30 contained one or more intergovernmental mandates, and 39 contained one or more private-sector mandates. Two public laws contained intergovermental mandates whose costs exceeded the statutory threshold of $64 million.

In addition to identifying mandates passed in 2006, the report gives overviews of mandate statements prepared by CBO in 2006 and mandates with above-threshold costs enacted since 1996.

A Review of CBO's Activities in 2006 Under the Unfunded Mandates Reform Act (pdf, 72pp/592kB), April 2007

Medicare Advantage

The Congressional Budget Office (CBO) has published testimony on the Medicare Advantage program presented by its Director in the U.S. House.

According to the testimony, Medicare Advantage (MA) is a departure from the traditional Medicare fee-for-service (FFS) program by allowing private plans such as health maintenance organizations (HMOs), preferred provider organizations (PPOs), and private fee-for-service plans (PFFS) to participate in Medicare.

The Director's main points:

• Unexpectedly strong growth in MA enrollment in 2006-early 2007 led CBO to increase its projections for MA enrollment and spending
• Medicare's payments for MA beneficiares are higher than for FFS beneficiaries, increasing net Medicare spending
• Increase in enrollment and cost differential with traditional FFS are especially large in PFFS plans, which are largely in rural and some suburban areas
• Reducing the payment differential betweeen MA and FFS would result in savings to Medicare but would also reduce the supplemental benefits and cash rebates.

Testimony on the Medicare Advantage Program: Trends and Options (pdf, 20pp/116kB), March 21, 2007

See related FR post, Premium support in Medicare, Dec. 12, 2006

Dow down - the bigger picture

In light of the Dow's "biggest loss since '03" yesterday (Washington Post, Feb. 28), the release of testimony today on economic volatility by Peter R. Orszag, Director of the Congressional Budget Office (CBO), is timely. His testimony covers macroeconomic volatility; workers' earnings and households' income; and risk sharing, income fluctuations, and taxation. Orszag's conclusion:

The U.S. economy has become less volatile: Macroeconomic fluctuations are now much milder than they were in the past. At the same time, however, households continue to experience substantial variability in their earnings and income, and that variability may now be greater than in the past--perhaps contributing to anxiety among workers and families. The tax system can help to smooth fluctuations in income not only at the macroeconomic level but also at the level of workers and households. The income insurance provided as a result may be quite valuable but needs to be weighed against the other effects of the tax system.

Economic Volatility (pdf, 15pp/120kB), Feb. 28, 2007

Premium support in Medicare

One of the strategies proposed to control escalating Medicare costs is converting Medicare to a premium support system, whereby the federal government would give beneficiaries an amount to purchase regular Medicare fee-for-service coverage or to enroll in a private plan. Formulating such a system is the subject of a recent 66-page report from the Congressional Budget Office (CBO).

According to the report, about 17 percent of Medicare beneficiaries are enrolled in private Medicare Advantage plans that provide Medicare benefits. For each private enrollee, the government sets a maximum payment called the benchmark, which is set at the county level. In a premium support system, CBO proposes that the government's contribution could be established by competitive bidding by private plans or be a set amount. In a bid approach, benchmarks could be determined by the bids rather than by statutory rules as currently done.

In its analysis, CBO notes a number of uncertainties in the effects of such a system, from costs and premiums to whether a benefits package should be standardized. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, P.L. 108-173 (pdf, 416pp/1MB), the government is to conduct a six-year, six-city demonstration of premium support beginning in 2010.

Designing a Premium Support System for Medicare (pdf, 66pp/608kB), December 2006

Pharmaceutical R&D

Perceptions that the pace of new-drug develoment has slowed and that the pharmaceutical industry is highly profitable have sparked concerns that significant problems loom for future drug development.

The foregoing spurred a recent study by the Congressional Budget Office (CBO) which looks at the current state of pharmaceutical R&D, how it is affected by complex economic forces, and how efficiently new drugs are delivered.

CBO also examines the following related issues:

• What explains the cost of developing new drugs?
• Does federal investment in R&D stimulate or displace private investment?
• Has the drug industry's innovative performance declined?
• How profitable are drug firms,and how do profits affect the amount and type of R&D that companies conduct?

According to the study, R&D costs vary depending on the type of drug being developed, the highest generally being for a new molecular entity (NME), rather than a modification of an existing drug. A recent estimate for an NME is $800 million, but that amount factors in failed projects and forgone investments and reflects research strategies related to expected revenues.

Research and Development in the Pharmaceutical Industry (pdf, 596KB, 65p.), October 2006

Higher energy prices - overall effects not bad

Contrary to general expectations, the large and persistent rise in energy prices that has occurred over the past two and a half years has not caused substantial problems for the overall U.S. economy.

So begins a recent paper from the Congressional Budget Office (CBO) analyzing the short-term macroeconomic effects of rising energy prices. The paper draws comparisons to the more negative fallout of the energy crisis that occurred in the 1970s. The current effects on gross domestic product (GDP), employment and inflation have been "moderate." Why? In brief: strong consumer spending, business investment and exports; better management of monetary policy; and the economy's increased flexibility and stability. Factors that have contributed to the economy's flexibility include deregulation, advances in informtion technology, and innovations in financial markets and institutions.

Deregulation and the newer information technolgies have joined, in the United States and elsewhere, to advance flexibility in the financial sector. Financial stability may turn out to have been the most important contributor to the evident significant gains in economic stability over the past two decades. --Alan Greenspan, Sept 27, 2005.

The Economic Effects of Recent Increases in Energy Prices (pdf, 448 KB, 26p.), July 2006

Medicaid costs - getting a grip

Donald B. Marron, Acting Director of the Congressional Budget Office (CBO), presented testimony today before the U.S. Senate Special Committee on Aging at its hearing on "From Medicaid to Retiree Benefits: How Seniors Impact America's Health Care Costs."

In Marron's testimony, CBO projects that federal spending for Medicaid will nearly double over the next 10 years, from $190 billion in FY2006 to $363 billion in 2015, when it will account for about 2 percent of gross domestic product (GDP). Medicare spending by the states will also increase, and for the economy as a whole, health care costs of GDP will climb from 16.5 percent in 2006 to 20 percent in 2015.

CBO offers the following options for controlling Medicaid spending:

• Reduce the federal contribution
• Reduce mandatory benefits or restrict coverage
• Increase beneficiaries' cost sharing
• Encourage greater use of lower-cost services

Testimony on Medicaid Spending Growth and Options for Controlling Costs
(pdf, 168KB, 28p.), July 13, 2006

Universal Service Fund

The Universal Service Fund (USF) was mandated by the Telecommunications Act of 1996 to further the federal goal of providing universal service in telecommunications to U.S. residents regardless of income or geography. USF matters because it is funded by payments from telephone companies which can, and do, pass this cost on to their customers. The Congressional Budget Office (CBO) recently issued a paper on increased spending in USF's High-Cost Program which serves consumers in rural areas. This program's expenses have increased more than 50 percent since FY2000 to about $7 billion.

The High Cost Program is one of four that USF supports. The others are: the Low-Income Program, the Schools and Libraries Program, and the Rural Health Care Program.

The Federal-State Joint Board on Universal Service makes recommendations to the Federal Communications Commission (FCC) on USF matters.

Factors That May Increase Future Spending from the Universal Service Fund (pdf, 900KB, 48p.), June 2006

Related CBO report:

Financing Universal Telephone Service (pdf, 504KB, 34p.), March 2005

Social security - long term

The Congressional Budget Office (CBO) has updated its long-term (100-year) projections for Social Security. From its June 2006 report:

At the present time, Social Security revenues are greater than outlays, but as the baby-boom generation continues to age, outlays will grow substantially faster than revenues. CBO projects that outlays will begin to exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2046.

CBO's projections of benefit levels indicate that future beneficiaries will receive higher retirement benefits--and pay higher Social Security taxes--than current beneficiaries do, even after adjustments for inflation and for the reductions that occur after the trust funds are exhausted. However, those benfits will represent a smaller percentage of their preretirement earnings than is the case now.

Updated Long-Term Projections for Social Security, (pdf, 480KB, 26p.), June 2006

CBO first released long-term projections in June 2004 and updated them in March 2005:

The Outlook for Social Security (pdf, 1.2MB, 49p.), June 2004

Updated Long-Term Projections for Social Security
(pdf, 936KB, 16p.) (also available in html), March 2005

Pandemic flu effects - from macro to you

The Congressional Budget Office (CBO) yesterday issued an update to its December 2005 report on the macroeconomic effects of an avian flu pandemic. As stated in the cover letter, this update focuses on "changes in the level of preparedness." The federal government's preparedness policy is evolving in three areas: vaccines and vaccine production capacity, antiviral drugs and other medications to mitigate the effects of a pandemic, and preparing state and local government responses to an outbreak.

Since the December 2005 assessment, CBO notes several developments: additional studies, one of which predicts a milder impact than previous estimates; the Department of Health and Human Services (HHS) contracting with six vaccine manufacturers to be able to inoculate, by 2011, the entire U.S. population within six months of an outbreak; the Administration's publication this month of a National Strategy for Pandemic Influenza Implementation Plan (pdf, 4MB, 233p., from the Homeland Security Council); and the enactment of the Public Readiness and Emergency Preparedness (PREP) Act, P.L. 109-148 (pdf), at 119 Stat. 2818, which protects "countermeasure" manufacturers from liability.

A Potential Influenza Pandemic: An Update on Possible Macroeconomic Effects and Policy Issues (pdf, 132KB, 22p.), May 22, 2006

A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues (pdf, 312KB, 50p.), Dec. 8, 2005

HHS has created a pandemic-avian flu website which includes planning and response information for each state.

For Hawaii - pandemic flu information:

• HHS site
• Hawaii Dept. of Health (DOH) site
• Hawaii Pandemic Flu Summit, April 25, 2006