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Letter to the Honorable Jim Nussle: Comparison of CBO and Administration Estimates of the Effect of H.R. 1 on Direct Spending [i] (February 2004)

handle is hein.congrec/cbo9269 and id is 1 raw text is: February 2, 2004 Honorable Jim Nussle Chairman Committee on the Budget U.S. House of Representatives Washington, DC 20515 Dear Mr. Chairman, CBO's baseline budgetary projections released in the Budget and Economic Outlook include $395 billion in outlays over 2004 to 2013 for the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173). That amount is identical to CBO's scoring of the bill when passed. In contrast, the Administration estimates that additional outlays resulting from that act will total $534 billion over the 2004-2013 period. Of course, a complete comparison of the overall budgetary impact of the legislation must also consider the effect on revenues. CBO estimates that the revenue effects of the legislation are largely offsetting. The legislation reduces revenues by providing qualified taxpayers with health savings accounts. At the same time, it increases revenues, CBO estimates, as businesses reduce expen- ditures on nontaxable health benefits and increase them on taxable wages. The Administration has not released its estimated effects of the legislation on rev- enues. Those estimates could certainly differ from CBO's. Because the new prescription drug program represents a major departure from what currently exists, there is a great deal of uncertainty about its budgetary impact and a wide range of possible outcomes. CBO's estimate was the result of extensive analyses of the pharmaceutical drug market, the Medicare pro- gram, and the likely responses of potential enrollees. To date, we have not received any additional data or studies that would lead us to reconsider our conclusions. Therefore, CBO believes its estimate is sound and has no reason, at present, to revise it. CBO has consulted with the Administration to identify the major factors that account for the differences between the two estimates. Although such a com- parison is complicated and we do not have complete detail on the key

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