OMB.gov Blog Feed

The Team Is Set

2009-11-23T15:56:00Z

Peter R. Orszag, Director

This weekend, the Senate completed the OMB team when it confirmed Dan Gordon to lead the Office of Federal Procurement Policy (OFPP). Dan brings more than two decades of professional contracting experience to OMB, having most recently served as Acting General Counsel at GAO. He understands the President’s goal of improving the contracting system in order to provide the best value for taxpayers. Dan will be at the center of this effort to deliver better value to the American people at a lower cost to the government’s bottom line.

During his confirmation hearing, Dan talked about working to rebuild the American people’s confidence in the government’s ability to produce results. It is a major challenge, but Dan and the team at OFPP are committed to helping agencies improve their performance and achieve the results that the American people expect.

Congratulations to Dan on his confirmation, and a special thanks to his partner, Paul Cadario, and to his family. We’re glad to have you at OMB.

A Washington Post Post

2009-11-20T15:00:00Z

Peter R. Orszag, Director

In today’s Washington Post, I have an op-ed discussing an issue critical to the country’s fiscal future: health-care reform that provides the highest quality of care and helps stem rising health-care costs. In the piece, I lay out the four key pillars of fiscally-responsible health reform as identified by a group of the nation’s leading economists: deficit neutrality, a tax on high-cost plans, a Medicare commission, and delivery system reform. As the debate moves to the Senate and we move closer to a final bill, I argue that the greatest risk we run is not completing health reform and letting this opportunity to lay a new foundation for our economy and our country pass us by.

A Washington Post Post

2009-11-20T15:00:00Z

Peter R. Orszag, Director

In today’s Washington Post, I have an op-ed that lays out the four key pillars of fiscally-responsible health reform as endorsed by a group of the nation’s leading economists: deficit neutrality, an excise tax on high-cost insurance plans, a Medicare commission, and delivery system reform. As we move closer to a final bill, I argue that the greatest risk we run is not completing health reform.

Reducing Improper Payments

2009-11-18T15:25:00Z

Peter R. Orszag, Director

Each year, taxpayers lose billions of dollars in wasteful improper payments by the federal government to individuals, organizations, and contractors. "Improper payments" is an umbrella term that covers a number of financial transactions — overpayments to individuals or firms is one example; benefit payments to ineligible program participants is another. In 2008, improper payments totaled $72 billion; in 2009, they totaled $98 billion — an increase driven by improved detection and the significant increase in federal outlays associated with the economic downturn. These errors and mistakes are unacceptable. Taxpayers deserve to know that their dollars are being spent wisely and effectively.

In response, the President, over the next week, will sign an executive order to rein in these improper payments so that the right people receive the right payment for the right reason. The response revolves around three categories of action: boosting transparency, holding agencies accountable, and creating strong incentives for compliance. In addition to the Executive Order, Congress is making efforts to reduce fraud, waste, and abuse through improper payments. We look forward to continuing to work with Congress, including Senators Carper and McCaskill and Congressman Patrick Murphy, on this important issue.

Here’s what the Executive Order will do:

Boost transparency. In line with the President’s commitment to openness, the Administration will take the following steps:

Create an online dashboard of key indicators and statistics on improper payments.
Create and publicize a single mechanism for the public to report suspected incidences of waste, fraud, or abuse.
Require agencies to establish more frequent error reduction targets, and more frequent error measurement for certain high-priority programs.
Issue recommendations on ways to measure program access for intended beneficiaries, with a view to including those measures in the dashboard.

Hold agencies accountable for waste. To hold agencies accountable for misusing taxpayer dollars by allowing improper payments, the Administration will:

Require each agency to designate a current, Senate-confirmed appointee to be accountable to the President for meeting improper payment reduction targets.
Require that all targets for improper payments show reduction and/or improvement and share the agency’s measurement methodology and plans for meeting the reduction targets with the agency’s Inspector General.
Issue recommendations on new internal techniques agencies could use to better detect and mitigate improper payments.
For programs where targets for reducing payment error rates are not met for two years in a row, require the agency head, Chief Financial Officer, and the agency Inspector General to provide the OMB Director a report describing the likely causes of the agency’s failure and actions it will take to meet reduction targets.
Increase data-sharing among agencies to improve eligibility verification and pre-payment scrutiny.
Require agency quarterly submissions and publication of reports on any high-dollar errors identified by the agency and actions the agency will take to recover the improper payment and to prevent future improper payments.
Demand that agencies’ plans for reducing program error not unduly burden program access and participation for legitimate beneficiaries, and hold agencies accountable for implementing those plans alongside reductions in improper payments.

Create incentives for compliance. To create incentives for states, agencies, and recipients to report and reduce payment errors, the Administration will:

Pursue administrative actions to provide state, local, and other organizations with incentives for reducing improper payments.
Seek to enhance contractor accountability by pursuing methods such as subjecting contractors to debarment, suspension, and financial penalties for failing to timely disclosing credible evidence of significant overpayments received on government contracts.
Revisit the Single Audit Act requirements.

The President is committed to reducing improper payments and making sure your taxpayer dollars are spent wisely. At the same time, he also believes we must protect access to federal programs for their intended beneficiaries, especially the most vulnerable. This order will contain protections designed to do just that.

Fiscally Responsible Health Reform Redux

2009-11-10T19:07:00Z

Peter R. Orszag, Director

Every two weeks or so, there seems to be a story ringing the alarm bells over the fiscal dimension of health reform.

As I've said time and again, the President is committed to signing a health reform bill that is deficit neutral in the first decade — and deficit reducing thereafter. The legislation under consideration in the Senate and the bill passed Saturday by the House both meet these tests.

But health reform effort must go beyond simply being deficit neutral over the first decade and deficit reducing thereafter; it must also begin the process of transforming the health care system so that it delivers better care, not just more care. Building the health care system of the future requires information technology; cutting-edge research into what works and what doesn’t; incentives for doctors and hospitals to focus on the quality of care; prevention and wellness; and a process that allows policy to adapt flexibly to changes in the health care marketplace over time.

The House and Senate versions of reform share a variety of measures that will help create this health care system of the future, which will help to contain health care cost growth while also providing Americans with higher quality care. In addition to historic investments in health information technology, research into what works and what doesn't, and prevention and wellness investments that were included in the Recovery Act, some of the key provisions under consideration in the health reform bills include:

Changing the way we pay hospitals, to discourage mistakes and unnecessary readmissions.
Creating incentives in the payment system to reward quality of care rather than just the quantity of procedures.
Giving physicians incentives to collaborate in the coordination of patient care. Investing in research into what works and what doesn’t in health care.
Reducing hospital-acquired infections and other avoidable health-center acquired conditions through rigorous reporting and transparency.
Imposing a fee on insurance companies offering high-premium plans — which would create a strong incentive for more efficient plans that would help reduce the growth of premiums.
Establishing a Medicare commission — which would develop and submit proposals to Congress aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries.

As we approach the final stages of this health reform process, we have on the table a robust set of options that represent some of the most auspicious reforms we can take to transform our health care system and rein in health care cost growth. But don’t take my word for it. A bipartisan group of experts recently wrote that health reform legislation under discussion "offers many promising ideas to improve the overall performance of the U.S. health care system. In addition to steps that would reduce the number of Americans without insurance coverage, the plan includes ways to slow long-term spending growth while building the high-value health care system our nation urgently needs." Or read what a group of some of the most prominent health care and budget experts wrote in an open letter (pdf) released last week.

As we go through the rest of the process, the Administration will remain focused on ensuring that reform is fiscally responsible and helps to build the health care system of the future.

Step Right Up

2009-11-05T21:05:00Z

Peter R. Orszag, Director

Last Friday marked the end of the first month of the OMB pedometer challenge. As a team, we took a whopping 51,337,900 in the first month. This is equivalent to walking almost 26,000 miles — over a thousand miles more than walking the full circumference of the earth. Quite an accomplishment.

Today, I am proud to announce the winners for the first month of the pedometer challenge. The award for highest stepper goes to James Laity, who took 894,098 steps in the first month (beating me by over a half a million steps). The team with the highest average steps was the Natural Resources Division, which took an average of 261,143 steps.

As you know, we are not just rewarding the top performers, but also the most improved. To calculate improvement, we took the total steps at the end of week four and subtracted the total steps from the end of week 2 (the first full week). The individual and group winners in this category were Thad Messenger, with a total of 681,599 steps, and the Director’s Office, with an average of 198,004 steps.

I am excited about continuing this challenge and trying to improve my own performance (right now, I am ranked 60^th). I also look forward to celebrating with our winners and using this challenge as an opportunity and reminder that although this is a busy time of year, it is important for all of us to stay active.

Congratulations to all of our winners, and keep up the great work!

Rescue, Recovery, and Reining in Deficits

2009-11-03T17:18:00Z

Peter R. Orszag, Director

I delivered a speech today at New York University about the Administration’s efforts to jumpstart the economy and to build a secure and prosperous recovery by putting the nation on a path to fiscal sustainability — issues that are especially important to the students of today and generations to come.

The Administration currently projects roughly $9 trillion in deficits over the next decade, an amount due in full to the failure to pay for policies in the past, the cost of the worst economic downturn since the Great Depression, and the steps we had to take to combat it. That is why we are right now tackling the key driver of our long-run deficits, the rising rate of health care cost growth, and are committed to paying for the costs of health reform in full. It’s also why the Administration is currently considering a range of proposals to bring deficits down to a fiscally sustainable level of roughly 3 percent of GDP, and to cut the deficit we inherited in half by the end of the President’s first term.

Improving our Performance

2009-10-29T20:08:00Z

Peter R. Orszag, Director

Today on Capitol Hill, OMB Deputy Director for Management Jeff Zients testified in front of the Senate Budget Committee about the Administration’s efforts to improve the performance of the federal government so that it is more efficient and effective.

As Jeff said in his testimony, "Overall, too much emphasis has been placed on producing performance information to comply with a checklist of requirements instead of using it to drive change. This must change. Federal managers and employees at all levels must use performance goals and measures to set priorities, monitor progress, and diagnose problems. They must learn from practices that work and those that do not. They need to learn how to use goals and measures to motivate the best from our workforce and our service delivery partners to achieve greater results and to allocate scarce resources wisely."

Click here to read Jeff’s full testimony from today’s hearing.

Missing the Boat on Cost Containment

2009-10-26T18:25:00Z

Peter R. Orszag, Director

As I have said repeatedly — and as my colleague, Christy Romer, is discussing today at the Center for American Progress — reducing health care cost growth is the key to our fiscal future. To anyone who has studied our fiscal facts, this central conclusion seems indisputable.

And yet — perhaps because of the long-standing (and sometimes warranted) skepticism toward government, the fiscal irresponsibility of recent years, or just the generalized jaundiced view that journalists often like to project — every few days, there seems to be another commentator who fails to believe that we can pass deficit-neutral health insurance reform that also puts us on a path to reduce the deficit over the long term.

Fred Hiatt in today’s Washington Post is the latest of these naysayers, writing in his column that the two biggest steps that can be taken to reduce the rate of health care cost growth — changes in health care’s tax treatment and an independent Medicare commission — are missing. I agree with Hiatt on the potential substantial benefits in terms of cost containment from these two changes. But a note to readers who have not read their Washington Post the past few weeks: the Senate Finance Committee bill includes both of these measures.

Indeed, that committee’s final mark creates an excise tax on insurance companies offering high-premium plans — which would create a strong incentive for more efficient plans that would help reduce the growth of premiums. And it establishes a Medicare commission — which would develop and submit proposals to Congress aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries.

If the concern is that these two provisions would not survive the rest of the congressional process, then say that — rather than suggesting that they aren’t already reflected in legislation.

Moreover, as I blogged a couple of weeks ago, the Senate Finance Committee’s bill is not the only measure that includes important cost constraining provisions. The other bills in the House also include provisions that experts from across the spectrum agree will help transform health care so that it delivers higher quality care and constrains cost growth. From penalties for hospitals with high, preventable 30-day readmission rates to encouraging the establishment of accountable care organizations and bundled payments for high-cost, chronic conditions, these bills undertake many of the reforms that hold the most promise for controlling costs and boosting quality.

Hiatt writes that "no one knows for sure how to control costs." True, we have never transformed the health sector before, and it is therefore difficult to quantify precisely how these steps will work together to promote quality and reduce cost growth. But it is wrong to conclude that these steps — even the ones beyond the excise tax on high-cost plans and the Medicare commission — are merely hypothetical pie in the sky. They represent what independent analysts and bipartisan groups such as the Engelberg Center at the Brookings Institution all say hold the most promise. In addition, recognizing that we need flexibility to adjust measures in a dynamic health care system, many of the bills start programs as pilot projects that can be quickly scaled up as results come in, and a Medicare commission too will be able to respond to changes as the health system evolves.

As the contours of the Senate and House bills are still being hammered out, we can’t lose sight of how far we’ve come — and how close we are to reform that could help move the health system in a healthier direction. As the President has repeatedly emphasized: Doing nothing is the surest way to fiscal failure, while reform is the best path for fiscal responsibility.

Birth date, business cycles, and lifetime income

2009-10-22T23:15:00Z

Peter R. Orszag, Director

We often hear about people who are unlucky in love, but what of those who are unlucky in the business cycle? What is the impact of being born two decades before a significant economic downturn, such that you graduate from college and enter the labor force in the middle of a period of high unemployment?

As the class of 2009 is keenly aware, entering the labor market during a recession has immediate negative effects. Job offers are harder to find: according to the National Association of Colleges and Employers, less than 20 percent of the class of 2009 graduated from college with a job offer in hand, compared to 25 percent in the class of 2008 and more than 50 percent in the class of 2007. Whereas year to year starting salaries on average tend to increase, with the tough competition in this year’s labor market, average starting offers for the class of 2009 are slightly down.

I recently read a paper that suggests that, for this cohort, the wage effect of graduating during a period of high unemployment will continue well beyond the end of the recession and even the labor market rebound. In examining the cohorts of college graduates that entered the labor market before, during, and after the recession of the early 1980s, Lisa Kahn of the Yale School of Management found that an increase in unemployment produces a significant and enduring negative wage effect.

The chart below illustrates this effect: a one percentage point increase in the national unemployment rate is associated with a 6 to 7 percent loss in initial wages. The annual wage loss declines over time, but is still statistically significant 15 years later. Comparing the wages earned by the class of 1982 (a peak unemployment year) with the wages of the class of 1988 (a peak employment year) over the first 20 years of a career, the wage difference resulted in a difference of nearly $100,000 in cumulative earnings in net present value.

Entering Labor Force During Recession Has Enduring Effect on Wages:
For the 1982 Cohort, $100,000 NPV Loss in First 20 Years of Career

Data from Kahn 2009

The long-term effect isn’t just a residual of low first-year wages: the author suggests that poor job match, lower prestige placements, and fewer opportunities for training and promotion also play a role. Other researchers have found similar effects: Oreopolous et al find persistent wage effects for Canadian college graduates; Bowlus and Liu find persistent wage effects for high school graduates moving directly into the work force, and other studies assess how the macroeconomy affects impact newly minted MBAs and economics PhDs.

The evidence thus suggests that a recession hits young people particularly hard, knocking them off course with effects that last for years to come. As we rebuild a new foundation for economic growth, it’s critical that we keep this in mind.

Better than the Heisman

2009-10-14T00:07:00Z

Peter R. Orszag, Director

Tonight, the Senate confirmed Danny Werfel as Controller, Office of Federal Financial Management (OFFM). This is great news for OMB, as Danny brings broad experience and financial acumen to the table. His skills will be tested, as there are serious challenges facing the federal government to improve transparency and drive better results for the American people.

I’ve written before about Danny’s essential role in implementing the President’s ambitious agenda through the transition as Acting Controller, and particularly his work in implementing — with unprecedented accountability and openness — the American Recovery and Reinvestment Act.

I look forward to his leadership in furthering President’s agenda and in our work going forward; he is, as he has been, vital to what we do.

I thank his wife, Beth, and their children, Sean and Molly, for sharing Danny with us. I join everyone at OMB in congratulating Danny and his family on his confirmation.

P.S. A point of clarification: OMB’s Danny Werfel is not to be confused with Danny Wuerffel, who won the 1996 Heisman trophy as quarterback at the University of Florida, last seen in Washington as a member of the ‘Skins in 2002.

Bending the Curve in More Ways Than One

2009-10-13T18:00:00Z

Peter R. Orszag, Director

Over the past few days, a number of news articles about health reform have suggested that efforts to control the growth of health care costs are in jeopardy. Great strides to control long-term health care costs have been made in both the Senate and the House — fulfilling a key goal of the President’s health reform effort.

The two provisions that get the most attention are found in the Senate Finance Committee’s mark. The first is an excise tax on insurance companies offering high-premium plans — which would create an incentive for more efficient plans that would help reduce the growth of premiums. The second is a Medicare commission — which would develop and submit proposals to Congress aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries.

These are both crucial facets of a reform plan, but too often other important delivery system reforms are ignored — which is unfortunately the case for those recent news articles. The result is a failure to recognize how far the entire political system has come in putting us on the verge of passing fiscally responsible health insurance reform.

Consider these important reforms found in many of the bills:

Bundled payments. Bundled payments, which pay a fixed amount for an entire episode of care rather than piecemeal for each individual treatment or procedure, would help improve patient care by encouraging better and more coordinated care than under a fee-for-service system. Bills in both the Senate and the House would develop, test, and evaluate bundled payment methods through a national, voluntary pilot program. Once we see what works and what doesn’t, bundled payments can be quickly scaled up across the country.
Penalties for high readmissions. Too often, patients are discharged from the hospital without the necessary follow-up care — leading to re-hospitalization, risks to one’s health, and higher costs. Under the proposals being considered, Medicare would collect data on readmission rates by hospital and would assess penalties on those hospitals with high, preventable readmission rates.
Accountable care organizations (ACOs). Under the current system, quality and efficiency are not sufficiently rewarded, and there is little incentive for physicians to collaborate in the coordination of patient care. Legislation in both houses would encourage and reward ACOs, which are groups of providers that are jointly responsible for the quality and cost of health care services for a population of beneficiaries with chronic conditions.
Quality incentives for physicians. These proposals would expand quality incentives for physicians and provide more timely feedback on physician performance based on their submitted data.

These — and other measures — are why a bipartisan group of experts recently wrote that health reform legislation under discussion "offers many promising ideas to improve the overall performance of the U.S. health care system. In addition to steps that would reduce the number of Americans without insurance coverage, the plan includes ways to slow long-term spending growth while building the high-value health care system our nation urgently needs." The Administration looks forward to working with the Congress as the legislation proceeds to continue to refine and improve these cost-containing steps.

Score One for Senate Finance

2009-10-07T23:33:00Z

Peter R. Orszag, Director

This afternoon, the Congressional Budget Office (CBO) released its estimate of the budgetary and coverage effects of the Senate Finance Committee health reform legislation. The bottom line is that this mark demonstrates that we can expand coverage and improve quality while being fiscally responsible. It does not add one dime to the deficit over the next 10 years and, according to CBO, reduces deficits significantly thereafter.

Specifically, over the next 10 years, CBO reports that the Senate Finance bill would reduce deficits by $81 billion — and, after that, the fiscal news gets even better. CBO projects that the bill would reduce deficits in the second decade by one-quarter to one-half of a percent of GDP. To put that in context: this is equivalent to deficit reduction of between $450 and $900 billion over the coming decade.

These figures, furthermore, largely exclude the impact of "game-changing" measures that can move health care toward a higher-quality, lower-cost future and bend the cost curve in the long-run. As experts ranging from the Institute of Medicine to the Brookings Institution to CBO itself have recognized, these game-changing measures — such as an expansion of bundled payments for medical providers, support for accountable care organizations, and creation of a Medicare Commission — hold substantial promise for transforming our health care system into one that delivers higher-quality care, not just more care.

Putting the green eyeshades aside, this bill also will help millions more Americans gain health insurance coverage. In fact, the share of legal residents who are uninsured would be reduced by almost two-thirds— 29 million Americans would gain coverage by the end of the decade. And for those with health insurance, it would provide stability and security and protect them from some of the insurance industry’s worst practices — like denying coverage because of a pre-existing condition, or dropping or watering down coverage when you get sick and need it most.

There remains work to be done. Congress still has to merge various versions of reform legislation into one final bill. But there is much overlap among those bills — and a growing consensus in this country that we can no longer wait for reform (Bob Dole, for one, just endorsed it). We are already far closer to health insurance reform than ever before, and today’s CBO analysis is yet another important step along the way.

Valuing Evaluation

2009-10-07T17:40:00Z

Peter R. Orszag, Director

Especially in these difficult economic times, it’s critical that taxpayer dollars are used wisely. We can’t just keep continuing with business as usual in Washington where programs get funded because they always have – even if they may be ineffective, duplicative, or outdated. That is why the President has made changing how the federal government does business and how taxpayer dollars are spent a top priority. And, as I have written about before, it’s why we are putting an emphasis on objective, rigorous evaluations to help drive funding decisions across the government. To help meet that goal, OMB today put forward a new evaluation initiative that will serve as an important tool for decision-makers and the public to track what works – and what doesn’t.

Most agencies regularly review ongoing programs, but too often, because of measurement or data constraints, design problems, or lack of resources within the agency, these reviews are not robust enough to provide meaningful information about a program’s outcomes and measurable progress towards the agency’s objective. Many agencies simply don’t have the capacity to carry out a rigorous, strategic research agenda. The result is that policy priorities are established without evidence to back them up. Programs are continued year after year almost by rote, without a hard, objective look as to their effectiveness.

We want to break that cycle. We want to provide an honest, up-front analysis of government programs and services. This independent evaluation needs to be built into the DNA of the government’s priority-setting and funding determinations.

To achieve this goal, OMB is encouraging agencies to volunteer for a new program evaluation initiative designed to strengthen rigorous, objective assessments of existing federal activities to improve results and better inform funding decisions. Ongoing program evaluation research will be published online, and an interagency task force will identify and help to shape evaluations of programs that cross over several agencies.

Why voluntary? This is a first step. The agencies participating in this initial effort will serve as demonstration projects through which we can test approaches to improve program effectiveness and efficiency, share best practices, and further improve performance. After assessing this initiative in FY2011, the Administration will be better positioned to implement government-wide evaluation metrics.

The bottom line is that rigorous, independent evaluation drives results – giving us a government that is both more efficient and effective.

I also should note that to help get the best ideas about how to create a more effective and responsive government, we have launched the President’s SAVE Award, a contest for front-line workers to give us their best cost-saving ideas. We have one more week in the contest and already have thousands of great entries. If you’re a federal worker reading this blog, go to www.SAVEAward.gov, and give us your best idea.

Removing Barriers to College

2009-10-05T21:12:00Z

Peter R. Orszag, Director

This weekend I read a fascinating new paper about the impact of providing a simplified approach to financial aid for prospective college students.

The results are startling: high school seniors who were provided a modest amount of help in filling out the forms were almost 30 percent more likely to attend college and receive a Pell Grant the next year than a statistically comparable control group. The paper underscores two key themes we are promoting at OMB: the crucial role of behavioral economics (which often highlights the benefits from making things easy and simple) and the use of rigorous analysis (in this case, the study relies on random assignment).

In particular, during tax season, H&R Block professionals offered help in completing student financial aid applications to a group of low and moderate income clients. One set of clients was assisted by their tax professional through the process of completing the Free Application for Federal Student Aid (FAFSA). Data already provided in their tax forms was automatically pulled into the form, and the tax specialist walked clients through a series of questions to complete the rest of the form. Families were immediately given an estimate of possible federal aid and cost information on four local post-secondary options. If the clients approved, H&R block then electronically submitted the completed FAFSA on their behalf. The result was a 40 percent increase in FAFSA submission rates, and a 29 percent increase in college attendance rates the next year (see chart below).

These outcomes are very impressive, and point to the deleterious effects associated with the complexity of the current application process. The FAFSA is more than four times longer than the 1040 EZ tax form, includes 153 questions, and requires applicants to report detailed information about income and assets, much of which is difficult to understand and pull together, and often has little ultimate bearing on eligibility for aid. As this study demonstrates, small differences in application procedures can make a difference in program participation.

The Administration is already taking several steps to remove barriers from the FAFSA application process. These include the use of a shorter, simplified form as well as enabling online users to automatically transfer data previously supplied electronically in their tax forms directly into their FAFSA application. Congress is considering the Administration’s proposal to simplify aid eligibility requirements. This research underscores the benefits of these types of reforms -- and how important it is to remove barriers to college entry.

A View from the Institute of Medicine

2009-10-05T14:46:00Z

Peter R. Orszag, Director

The need for health insurance reform just became clearer with the release from the non-partisan Institute of Medicine (IOM) of an estimate that the health care system contains over $800 billion in excess costs, a number consistent with previous studies. In other words, according to this new estimate, we spend more than $800 billion a year on health care that does not make us healthier. The result is higher premiums for us all and higher costs for the government — but it also means you may receive tests and procedures that you do not need, putting your health at risk.

According to the study, excess costs arise from a variety of sources. Excessively high administrative costs for insurers, physician and hospitals come to about $200 billion. Unnecessary services, such as using more expensive brand name drugs when generics are just as good and overusing tests and treatments compared to professional guidelines, account for another $200 billion or so. Errors and avoidable complications add $75 billion, and fraud adds another $75 billion. Preventive measures — both in terms of keeping healthy people healthy and keeping people with chronic illness such as diabetes out of the hospital — tack on another $55 billion. And the list goes on.

The big question is how can we get reduce these costs? The IOM identifies different levers to push change, including: uniform administrative requirements for paperwork; reform of payment incentives so that they are more oriented toward results and quality; increased reliance on evidence-based quality practices; the development of more independent evidence of what works and what does not work; electronic clinical records that can be shared and are privacy protected; and providing incentives for more consistent and widespread prevention interventions. As one goes down the list, almost all these changes have been endorsed by the Administration and most are included in the reform bills making their way through Congress, including the legislation currently being considered by the Finance Committee.

The bottom line is that this report highlights the hundreds of billions of dollars wasted every year on inefficient and unnecessary care in our health care system. And there is an evolving consensus — from the non-partisan IOM to the recent bi-partisan, Brookings Institution study — that the types of policies the Administration has endorsed will help to reduce these excessive costs over time. This both will help put the nation on a more sustainable fiscal path and enable us to use these now-wasted funds to provide higher quality medical care to more Americans.

A Real Pro for Procurement

2009-10-02T21:05:00Z

Peter R. Orszag, Director

Today, the President announced his intent to nominate Dan Gordon to serve as the Administrator for Federal Procurement Policy – a key member of the management team here at OMB. Dan is a career contracting professional who understands that the top goal of our procurement efforts is to use taxpayers’ dollars smartly and effectively – that we get the most value for every dollar we spend. Dan will bring a fresh approach to procurement policy, but he also will rely on the expertise of the career procurement workforce to improve our procurement processes.

This is a critical job. In July, OMB unveiled contracting and workforce reforms that are designed to save the taxpayers at least $40 billion a year. The reforms focus on three areas: streamlined acquisition, managing the multi-sector workforce, and improved contractor performance. In his new job, Dan will help to implement these reforms and develop new strategies to improve procurement.

On behalf of all of us at OMB, congratulations to Dan on his nomination.

Fiscal Fitness

2009-10-01T15:39:00Z

Peter R. Orszag, Director

October 1^st marks the beginning of a new fiscal year. At OMB, that coincides with an increased pace as we begin to put together the Fiscal Year 2011 Budget. This year, as part of their budget submissions, federal agencies have been asked to report on their efforts to improve the health and wellness of their employees. I want to make sure that the staff at OMB doesn’t just talk the talk on wellness, but that we also walk the walk — literally.

As a first step towards making that happen, today we will be kicking off the OMB Pedometer Challenge. This afternoon, we’ll be making pedometers available to all OMB employees to give them a tool to track their steps, increase their physical activity, and make strides towards reducing their stress levels and improving their overall health. As the days get shorter, the work hours get longer at OMB — and I’ve challenged myself and my staff to find creative ways to increase our physical activity over the coming months.

In true OMB fashion, the OMB Pedometer Challenge (which is entirely voluntary!) is an intervention backed by evidence: studies show that pedometers are proven to be one of the most cost-effective ways to increase physical activity. According to a study in the Journal of the American Medical Association (JAMA), the use of a pedometer caused participants to increase physical activity by as much as 27 percent — increasing average daily steps by over 2000 steps per day. A second study suggests that pedometers are one of the most cost-effective interventions for increasing physical activity.

In order to keep us all motivated, I’ll be posting my own daily step count on an internal website and I’ll be able to see who on my staff is beating me. But more than a race, this is a challenge — and I look forward to seeing how far we can collectively go.

Going the Distance – 10K ideas

2009-09-30T23:49:00Z

Peter R. Orszag, Director

Last week, OMB launched the President’s Save Award, a contest for federal employees to come up with the best idea to save taxpayer dollars and make the government perform more effectively and efficiently.

Today, we received the 10,000^th submission and we now have 10,266 entries (to be exact!).

If you are a federal employee and have not participated yet, there is good news: you have two weeks to enter. To submit your idea visit www.SaveAward.gov. The winner will meet with President Obama and have his or her idea incorporated into the FY 2011 Budget. (We also will recognize the agency with the highest participation rate so make sure your co-workers enter too!).

Overall, the SAVE Award will help us identify what works and what doesn’t, so taxpayer dollars are used in the most productive and effective way possible.

Why Are Older Workers Working Longer?

2009-09-25T13:18:00Z

Peter R. Orszag, Director

One of the most significant repercussions of the economic downturn has been its effect on the labor market. It goes without saying that too many Americans are out of work. And as you dig deeper into the data, it becomes evident that the age pattern of changes in labor force participation rates is different now than during past downturns.

As the graph below shows, labor force participation rates have actually increased among those near and at traditional retirement. Since the end of 2007, labor force participation has increased by 1.4 percentage points among men above age 65 and even more among men ages 62-64, while it has decreased by about 1 percentage point among younger men. Simply, older workers are forgoing retirement and working longer.

This pattern is different from what was observed in recessions in the previous several decades. During the four recessions between 1970 and 2000, labor force participation rates among older men consistently decreased more than the participation of younger men. In the recession of the early 2000s, this trend reversed somewhat, but not to the same degree as during the current period.

Why is this happening? Three factors may be at play.

First, we may simply be observing a continuation of the trend towards later retirement that began in the early 1990s:

Labor force participation among older workers has been on the upswing over the past decade—reflecting a number of factors, including better heath, changes in kinds of work and work patterns, and shifts in employer pensions from defined benefit to defined contribution and a decline in employer-provided retiree health insurance. These factors may be particularly important for the traditional "early retirement" group, ages 62-64.

Second, the current pattern could reflect declines in the value of retirement assets. With the shift away from defined benefit and towards defined contribution pensions like 401(k)s, changes in financial markets have a more direct effect on many workers’ retirement savings. With a smaller nest egg, older workers may thus have decided that they cannot yet afford to retire.

Finally, both the employment rate and the unemployment rate for workers over 65 have increased across the current downturn (this is in contrast to younger age cohorts, who have seen employment rates hold steady or decrease as unemployment has increased). This suggests that not only are older workers working longer, but some older workers are choosing to remain in the workforce through a period of unemployment and search for a new job—perhaps for the reasons discussed above—when older workers in the past may have transitioned out of the labor force. (Since the unemployed are counted as part of the labor force, the rise in the unemployment rate plays an important role in explaining the overall increase in labor force participation among older workers.)

Whatever the explanation, the bottom line is that we expect the overall unemployment rate to remain stubbornly high even if economic activity itself picks up steam. But the interesting differential between older and younger worker participation is one that merits a closer look – and may help us understand better how the labor market works.

Enhancing Performance

2009-09-24T18:09:00Z

Peter R. Orszag, Director

Last night, I attended the Service to America Medals ceremony, where I joined in honoring the outstanding performance of a number of federal civil servants. Their accomplishments are inspiring — including establishment of a national suicide prevention hotline for veterans; cutting-edge discoveries that have led to effective treatments for multiple sclerosis and forms of cancer; and development of a loan modification program that kept thousands in their homes.

These stories illustrate what federal workers and their agencies can accomplish. Strengthening government performance, however, requires not only outstanding people like those honored last night — we must also improve the federal government’s system for gathering and using information on program performance.

In that spirit, Jeff Zients, Deputy Director of OMB and the government’s Chief Performance Officer, is testifying today on the Administration’s ambitious agenda for reforming government-wide performance management.

As Jeff says, a key weakness of the approach to date is that it places too much emphasis on the production of performance measures to comply with reporting requirements — and too little on actually using performance metrics to inform government decision-making. Jeff is leading an effort to change this.

Already, the cabinet and other agencies have been asked to identify a limited number of high-priority performance goals to achieve over the next one to two years. These goals are now being finalized, and agency success in achieving them will be tracked. As goals are achieved, new ones will be added. Jeff is also working to integrate other federal performance reporting with these high-priority performance goals.

There is much more to come on performance management — which is why I’m pleased to announce that today OMB is adding Shelley Metzenbaum to our team. Shelley is one of the country’s leading experts on performance management, and she will be working with Jeff to bring our transformative agenda to fruition.

Skepticism is often expressed about what federal workers and their agencies can do. The stories I heard last night, though, illustrate what is possible — and we will be working hard to build upon those inspiring examples and catalyze better performance throughout the federal government.

Introducing the SAVE Award

2009-09-23T15:04:00Z

Peter R. Orszag, Director

Some of the best ideas come from those working on the frontlines, so today OMB is launching the President's SAVE Award, a contest for federal employees to come up with the best idea to save taxpayer dollars and make the government perform more effectively and efficiently. Federal employees will be able to submit their ideas, securely and confidentially, at www.SaveAward.gov. The deadline for submissions is Wednesday, October 14. The winner will meet with President Obama and have his or her idea incorporated into the FY 2011 Budget. (We also will recognize the agency with the highest participation rate so make sure your co-workers enter too!).

The SAVE Award is part of the President’s effort to change how business is conducted in Washington. It’s why he asked OMB to conduct a line-by-line review of the budget and issued a separate volume of $17 billion in terminations and reductions in this year’s budget; asked the Cabinet to identify hundreds of millions of dollars of administrative savings; and has undertaken a reform of how government contracting works, an effort that can save $40 billion over the next two years.

Overall, the SAVE Award will help us identify what works and what doesn’t, so taxpayer dollars are used in the most productive and effective way possible.

The SAVE Award will only work if federal employees take the time to enter. So if you’re a federal employee reading this right now at your desk, take the time to send us your idea. It only takes a few minutes, but the impact you can have on your agency and your country may last for years (and trust me, it’s cool to brief the President!).

If you want more information, go to www.SaveAward.gov.

Regulatory Mussel

2009-09-17T16:14:00Z

Peter R. Orszag, Director

Many things come across my desk at OMB. To offer a flavor: the Office of Information and Regulatory Affairs (OIRA) at OMB just completed review of a proposed rule from the U.S. Coast Guard that would establish a new, protective standard for ballast water discharge from vessels in U.S. waters. The rule would represent a significant step toward protecting our waters from the spread of invasive species.

Now, you might be wondering: What is ballast water? And why are we concerned about its discharge from ships? Ballast water is water that is taken onboard a ship and stored in tanks to help keep the vessel stable while at sea. It is often discharged when cargo is on-loaded while the ship is anchored in port. The problem is that ballast water may contain organisms that are not native to the area where it is released – and, once established, these invasive species can threaten native species and ecosystems, through predation, disease, and competition for resources. For example, many believe that the zebra mussel, which is native to the Black and Caspian Seas, was first introduced into North American waters through ballast water discharges; it has now colonized each of the Great Lakes and many major U.S. rivers. Not only do zebra mussels threaten native ecosystems, but they do millions of dollars a year in economic damage—including by clogging water intake pipes for many types of industrial facilities.

The Coast Guard’s new rule proposes a two-phase approach to upgrading our national ballast water standards so they become comparable to the most stringent state standards currently in place, such as those in California and New York. Under phase one, beginning in 2012 for new vessels, compliance with the standards adopted by the International Maritime Organization (IMO) would be mandated; under phase two, the allowable concentrations of organisms in ballast water would be reduced 1,000 fold relative to the IMO standards. These phase-two standards would be implemented for both new and existing vessels starting in 2016.

If you’d like more information about this proposed rule, including how to comment on it, I encourage you to visit http://www.regulations.gov. Information about the rule can be found under docket number: USCG-2001-10486. Comments are due November 27, 2009. The U.S. Coast Guard also plans to host public meetings that will be held to gather comments about the rulemaking.

Marshalling Memories

2009-09-14T23:45:00Z

Peter R. Orszag, Director

18 years ago, I was given the opportunity of a lifetime by the Marshall Commission to study at the London School of Economics. Tonight, I was able to meet the extraordinary group of this year’s winners as well as the American winners of this year’s Gates scholarships. It was a great reception at the British Embassy (hosted by Ambassador and Mrs. Sheinwald), and for those interested in how my Marshall interview went and my advice to this year’s winners, my remarks are here.

On Norms

2009-09-14T22:00:00Z

Peter R. Orszag, Director

I have spoken in the past about the often substantial role of social norms and "contagions" in our health and other behavior. This week’s New York Times Magazine has a fascinating article summarizing the research debate about the role of friends and family in affecting our behavior. See here.

The Head of the Cass

2009-09-10T20:10:00Z

Peter R. Orszag, Director

Just a few minutes ago, the Senate confirmed Cass Sunstein to serve as the Administrator of the Office of Information and Regulatory Affairs (OIRA) at OMB. All of OMB and the rest of the Obama Administration appreciates the Senate’s support and for securing smart, effective leadership at the top of our regulatory division.

As the President noted in nominating Cass, his pioneering work has defined many frontiers of understanding—in law, economics, and human behavior. That’s why he enjoyed support for his nomination from across the political spectrum—previous OIRA Administrators appointed by both Democrats and Republicans, prominent conservatives, the Farm Bureau, business, and environmentalists. Cass is the type of data-driven, creative thinker that we need in public life, and I am happy to welcome him to the OIRA post.

As I’ve written about Cass before (and recognizing how hard it is to provide any complete survey of such an accomplished scholar—and squash player!), I will keep myself to this: there is no one better poised than Cass Sunstein to drive the Administration’s regulatory reform agenda and thereby help to keep Americans safe and our economy strong.

The work ahead entails not only the daily challenge of oversight of rule-making and regulating, but also the larger effort of re-examining the way OIRA does business. Together, we’ll consider some of the fundamental questions facing modern government, including ways to increase participation and transparency in rulemaking, and to strive for regulation that supports fairness and equity.

Today, however, we take a moment to celebrate our new OIRA Administrator: from all of us at OMB, congratulations to Cass Sunstein.

Counting the Uninsured: 46 Million or “More than 30 Million”?

2009-09-10T18:52:00Z

Peter R. Orszag, Director

Last night, President Obama stated: "We are the only democracy—the only advanced democracy on Earth—the only wealthy nation—that allows such hardship for millions of its people. There are now more than 30 million American citizens who cannot get coverage."

Today, the Bureau of the Census released the most recent data on the number of uninsured Americans. The report, Income, Poverty, and Health Insurance Coverage in the United States: 2008, reveals that 46 million people were uninsured in 2008, the last year for which there are data. These data are based on the Current Population Survey. With two different numbers, there has been some confusion as to which is accurate. Well, both are -- and the President's version is more focused on the relevant target population for health reform since it excludes unauthorized immigrants.

The Census report indicates that of the 46 million uninsured individuals, 34 million were native born and 2.8 million were naturalized citizens. The report thus shows that there were 36.8 million uninsured U.S. citizens (native born and naturalized) in 2008. An alternative calculation includes legal immigrants, which based on a figure from the Pew Hispanic Center would bring the total to something like 39 million.

Some ambiguity surrounds how to treat individuals who are already eligible for public insurance programs like Medicaid and S-CHIP but do not enroll in those programs, which estimates from the Kaiser Commission on Medicaid and the Uninsured suggest may amount to millions of individuals. These individuals are uninsured but some interpretations would suggest they should not be counted among those who "cannot get" coverage. Subtracting them from the total would produce a number closer to 30 million.

To be conservative, the President thus stated that "more than 30 million American citizens" cannot get coverage.

The Ingenuity of the American People

2009-09-09T17:39:00Z

Peter R. Orszag, Director

On May 21, 2009 the Administration launched data.gov to drive transparency and innovation by making federal data easily accessible. This was immediately followed by the Apps for America contest, challenging the American people to develop innovative solutions using data.gov. The contest was run by the Sunlight Foundation, a non-profit, non-partisan organization focused on "using the revolutionary power of the Internet to make information about Congress and the federal government more meaningfully accessible to citizens."

Today, we celebrate the ingenuity of the American people with the announcement of Datamasher.org as the winner of the Apps for America contest. Datamasher.org provides the public with a simple interface to mash up government datasets to analyze and visualize the data in innovative ways.Datamasher allows you to take two different public data sources and mash them up with an operator (+ - * /). Then you can share them with your friends and comment on the mashups of others. Some of the interesting mashups currently posted on the site: Political party contribution ratio, Most reproductive states, Federal spending by population, and People per US Representative.

Initiatives such as Apps for America are just the beginning. Data transparency can spur economic, scientific, and educational innovation—as well as civic engagement—by making it easier to build applications, conduct analysis, and perform research. The Administration is leading a national movement towards data transparency with subsequent initiatives launching in San Francisco and New York City.

In the contest, we see the principles of transparency and public engagement working to deliver real solutions. The government doesn’t have a monopoly on the best ideas. We look forward to unleashing the creativity of the American people to show us what is possible and help us find the innovative path forward.

Before you click away, check out these other great ideas that rose to the final round of the competition:

GovPulse.us

ThisWeKnow.org

Banneker students: A shining example

2009-09-08T20:35:00Z

Peter R. Orszag, Director

Today as the President delivered his back to school message to students, I had the privilege to meet with students at Benjamin Banneker Academic High School, a public high school here in the District. (The school is named after a famous African American astronomer and mathematician, who published a series of almanacs in the late 18^th century and corresponded with Thomas Jefferson about the cruelty of slavery.) Banneker has an impressive 100 percent graduation rate and college enrollment rate – and thus offers an inspiring example of overcoming multiple barriers to educational success.

The school is open from 7 am to 7:30 pm, so that students have a place to study throughout the day. And it requires its students to undertake almost 300 hours of community service. During my visit, I was chaperoned by two student guides (both of whom were juniors) who brought me to the three hubs on campus where students congregate most: the high school library, where the banks of computers were full of students working on papers and completing assignments; the school gym (which was empty, but would be the location of a pickup lunchtime volleyball game within minutes); and the guidance office, which was literally hopping with seniors working on their college applications.

To be sure, the school enjoys some benefits: Students must apply to attend, and there are roughly 500 to 600 applicants for each incoming class of 125. It also has a somewhat lower share of students receiving free or reduced price lunches (which is dependent on family income) than the average for the nation as a whole. Nonetheless, the school clearly out-performs in its graduation and college placement rates, in part by setting expectations high and holding students to them.

It was clear as I spoke with people in the halls and during a session I had with the students that they have carved out impressive goals for themselves and have worked hard to earn the grades necessary to see them through. One student hoped to attend MIT and become a physicist; several wanted to become doctors; and another turned away from her dreams of attending one school when she learned that another had a program that better fit her interests.

To the students of Banneker, I would just say: keep it up! Your stories are impressive and inspiring.

Saving for Retirement – Making It Easy and Simple

2009-09-05T11:00:00Z

Peter R. Orszag, Director

One of the most compelling examples of the explanatory power of behavioral economics is the sometimes dramatic effects of small changes in making it easier to save for retirement. In this morning’s weekly address, the President highlighted four proposals to do just that. These common-sense changes include allowing more workers at small businesses to automatically enroll in a 401(k) or an IRA; making it easier to direct part of a tax refund into a retirement account; facilitating the direct deposit of lump sum payments, such as income tax rebates and payments for unused vacation and other leave days, into a retirement account; and creating plain-English, easy-to-understand guides on-line into the very complicated world of savings.

A significant and growing body of evidence shows that these types of changes can make a significant difference in savings outcomes – which in turn can help workers prepare for a more secure retirement. Take the effect of automatic enrollment on participation in employer-sponsored retirement plans. (Go here for an article I co-authored on the topic while at the Retirement Security Project.) A number of studies have demonstrated the substantial increase in participation from making enrollment automatic (with the option to turn down participation), rather than making non-enrollment the default (with the option to participate). The effect is particularly dramatic among low-income workers, who otherwise have very low participation rates. A 2007 survey by the Vanguard Center for Retirement Research found that 45 percent of newly hired workers participated in a 401(k) plan when doing so required them to opt in, but 86 percent participated when enrollment was automatic. Among those earning less than $30,000, 25 percent of new workers opted in under the traditional approach, but 77 percent participated when automatically enrolled.

Many employers have responded to these findings by changing the defaults in their 401(k) plans to opt-out rather than opt-in. Workers who aren’t offered employer-sponsored plans like 401(k)s, however, have not benefited from these changes. For such workers, expanding access to automatic savings—through plans like the automatic IRA, mentioned today by the President and included in the FY 2010 Budget—is a promising approach.

Another promising approach is the use of the tax system as a platform for implementing savings policy. A paper prepared for the National Tax Association’s 2009 Spring Symposium highlights the "attractive automaticity" of the payroll tax system for improving program take-up. According to the authors, a preponderance of evidence suggests that people’s natural tendency to procrastinate coupled with even minor barriers to taking up programs—waiting time, tedious applications, understanding program rules—can disproportionately discourage program participation. Yet nearly all workers file income tax returns, many tax filers receive refunds, and a growing share receives refunds via direct deposit. For many Americans, the federal income tax rebate is the biggest paycheck that they receive all year. The tax system thus opens up a "saveable moment"—directing refunds towards a retirement account where funds will be saved rather than a checking account where funds will be spent is a relatively small decision and can be accomplished with a check of a box. (I would note that one of the authors of this paper, Sendhil Mullinathan, has joined the OMB team for the upcoming year—an exciting addition to the staff as we consider how to apply behavioral economics across a range of policy questions.)

These proposals are being put forward by the President because as we build a new foundation for economic growth, we need to invest in what works – and for retirement saving, that is often through making it easier and simpler.

The Recovery Act at 200 Days

2009-09-03T15:10:00Z

Peter R. Orszag, Director

The American Recovery and Reinvestment Act marked its 200^th day on Tuesday. What are outside analysts saying about its impact?

Both Goldman Sachs and Mark Zandi of Economy.com have estimated that GDP growth in the second quarter was given a significant boost due to the Recovery Act. In particular, official estimates are that the economy contracted by an annualized rate of 1 percent in the second quarter. The Goldman and Zandi estimates suggest that the economy would instead have shrunk by 3 percent to 4 percent in the second quarter, if the Recovery Act had not been enacted. These analysts also project an even more significant boost to the economy in the third quarter (see chart below) before beginning to trail off afterward.

In addition, although the unemployment rate remains elevated (for some of the reasons, see here), the economy is losing jobs at a slower pace – from 2 million jobs lost in the first quarter to 1.3 million jobs lost in the second quarter of 2009. This is far from a full recovery, but private forecasters are crediting the Recovery Act for staunching the job loss associated with the recession and thereby protecting hundreds of thousands of jobs. Mark Zandi, for example, estimates that job loss in the second quarter would have been about 500,000 higher without the Recovery Act, and Josh Bivens of the Economic Policy Institute estimates that job loss would have been greater by approximately 720,000.

These various analyses thus echo the assessment of the Recovery Act offered by Alan Blinder, former Vice Chairman of the Federal Reserve (and a former professor of mine): "[W]hat six months ago looked like an economy plunging into an abyss is now an economy on the mend. And the stimulus deserves some of the credit."

Mid-Session Review

2009-08-25T13:30:00Z

Peter R. Orszag, Director

Today, OMB released the Mid-Session Review (MSR) which updates the Administration’s economic forecast, last done in February, and its budget projections.

The MSR shows a smaller 2009 deficit but larger out-year deficits than previously projected. Overall, it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path.

First, let’s consider this year’s deficit. We now expect that the policies put in place to repair the financial system are likely to cost taxpayers less than previously anticipated. In particular, we have decided to remove from the budget a placeholder for further financial stabilization efforts that seemed prudent earlier this year. And we have lowered our estimate of the expected costs of FDIC bank rescues.

The net result is a $262 billion improvement in the projected 2009 deficit. The 2009 deficit is now projected to be $1.58 trillion – or 11.2 percent of GDP – down from a previously projected $1.84 trillion or 12.9 percent of GDP.

Second, 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.

It is worth noting, however, that by 2019, the difference between non-interest spending and revenue, which is also known as the "primary deficit," is only 0.6 percent of GDP. Interest payments, which almost entirely represent the cost of the debt accumulated due to the policies of past administrations and the need to run short-run deficits to help the economy recover from the worst downturn since the Great Depression, are 3.4 percent of GDP.

During an economic downturn, one wants to allow the deficit to increase, so deficit reduction should be focused on the out-years – after the economy has recovered. That said, the out-year deficits hover in the range of 4 percent of GDP, which is higher than desirable. Getting the out-year deficit under control is a top priority of the Administration.

We are in the midst of the policy process surrounding the FY 2011 budget, and that process will include proposals to put the nation back on a fiscally sustainable path. In the meantime, we have to stop making these longer-term deficits worse – which is why the Administration supports statutory pay-as-you-go legislation, so that any new tax or entitlement initiatives are fully paid for. (If pay-go rules had been followed over the past eight years, the projected deficit would be $5 trillion lower over the next decade.)

In addition to avoiding making the problem any worse, we need to address the key driver of our long-term deficits: health care costs. The federal government simply cannot be put on a fiscally sustainable path without slowing the rate of health care cost growth in the long run. That is why the Administration is insistent that health care reform not only be deficit neutral over the next ten years, but also incorporate changes that will help reduce the deficit thereafter.

There’s no doubt that additional steps will be necessary to reduce our out-year deficits (including continuing our effort to reduce spending and reform government contracting), and the Administration will have more to say about all that as part of the FY 2011 Budget.

On inauguration day, the Administration inherited the greatest economic crisis and the largest deficits since the end of World War II. The economic freefall has been arrested, and, while too many people remain out of work, the consensus among private forecasters is that the economy will return to positive growth in the second half of this year. As the economy recovers, the Administration is committed to putting the nation on a fiscally sustainable path.

Another Look at IMAC

2009-08-04T15:10:00Z

Peter R. Orszag, Director

Yesterday, a group of some of the most distinguished health economists in the country sent a letter to the President and Congress in support of the Administration’s proposal for the establishment of an independent board of doctors and health experts to guide Medicare policy. This Independent Medicare Advisory Council (IMAC) would make recommendations on Medicare reimbursement policy and other reforms – playing a critical role in allowing health care policy to adjust flexibly to a dynamic health care market, thereby helping contain costs and improve quality over time.

As the authors note, "a properly structured Independent Medicare Advisory Council (IMAC), with a congressional mandate and authority to do so, can reduce the rate of growth of health expenditures substantially."

The signatories of this letter are household names to health policy wonks – Alan Garber, Jonathan Skinner, Joe Newhouse, and David Cutler to name just four – and they represent almost half of the Congressional Budget Office’s Panel of Health Advisers. Their support of the IMAC proposal underscores what most serious health analysts have recognized for some time: that moving toward a health system emphasizing quality rather than quantity will require continual effort, and that a key objective of legislation should be to put in place structures (like the IMAC) that facilitate such change over time. And ultimately, without a structure in place to help contain health care costs over the long term as the health market evolves, nothing else we do in fiscal policy will matter much, because eventually rising health care costs will overwhelm the federal budget.

Werfel Gets the Nod

2009-07-30T22:14:00Z

Peter R. Orszag, Director

Today, I am proud to announce that the President will nominate Danny Werfel to be the new Controller of OMB’s Office of Federal Financial Management (OFFM). Danny is currently Deputy Controller and in this capacity has served as Acting Controller during this critically important transition. His leadership in implementing the Recovery Act is just one example of his stellar work over many years – work that led the Administration to recognize what those who have worked with him have known for years: Danny’s an extraordinarily able public servant.

The role of the Controller at OMB is a critical one. Danny will be working closely with our Deputy Director for Management, Jeff Zients, in implementing the President’s ambitious agenda to improve the efficiency and effectiveness of the federal government. The Controller, in managing the day-to-day operations and longer term strategic priorities of the Chief Financial Officers’ Council, serves as the federal government’s catalyst for financial management improvement. The Controller is also responsible for coordinating OMB’s policy setting process on areas such as financial reporting, audits, internal controls, fraud and error reduction, and grants management. He makes sure that taxpayer dollars are being spent on what they’re meant to be spent on.

In his current role as Deputy Controller, Danny is responsible for coordinating OMB's efforts to initiate government-wide improvements in all areas of financial management, including financial reporting, improper payments, and real property management. He is also responsible for coordinating the development of government-wide policy on financial accounting standards, grants management, and financial systems.

Danny has spent his career working to improve the lives of others through federal service. He has spent 12 years working for the federal government, 10 of which have been at OMB. Prior to becoming Deputy Controller, Danny served as the Chief of the Financial Integrity and Analysis Branch within OMB, as a budget examiner in OMB's Education Branch, and as a policy analyst in OMB's Office of Information and Regulatory Affairs.

Please join me, Jeff, and Deputy Director Rob Nabors in congratulating Danny Werfel on his well-deserved promotion – pending Senate confirmation – to Controller at OMB.

Meeting the $100 Million Savings Challenge

2009-07-27T21:35:00Z

Peter R. Orszag, Director

Getting the most from our taxpayer dollars requires ongoing attention and effort. That’s why at the President’s first Cabinet meeting on April 20, he called on Cabinet members to identify at least $100 million in collective cuts to their administrative budgets, separate and apart from those identified in FY 2010 Budget. In a memo that Cabinet Secretary Chris Lu and I sent to the President, we report that agencies have identified 77 cost-saving measures that meet these criteria – amounting to $243 million in savings through 2010 and $265 million including savings in the out-years. Of this, about $102 million would be realized in FY 2009, and about $140 million would be saved in FY 2010.

Proposed efficiencies vary widely in size and scope – from a Defense department plan to save $52 million in FY 2010 by replacing the standard jet fuel used by the military with commercial jet fuel plus the military additives to a plan submitted by the National Highway Traffic Safety Administration to digitize its daily news clips – saving $1,000 per year for FY 2009-10. The rest run the gamut; here are a few:

The Department of Agriculture’s US Forest Service expects to save $1.8 million in FY 2009 by ceasing to re-paint newly purchased vehicles;

Numerous agencies will save money by improving energy efficiency and promoting more economical use of resources like water and paper. The Department of the Interior, for example, expects to save almost $1.3 million in utility bills and operating costs by FY 2010 by retrofitting buildings owned by the Bureau of Land Management, the National Park Service, and the Fish and Wildlife Service;

The Department of Justice will save an estimated $4 million in FY 2010 by requiring personnel to make their travel arrangements online, rather than relying on travel agents;

The Navy expects to save over $10 million in FY 2009-10 by modifying maintenance procedures for submarines to reduce costs and focus on the highest priority work; and

The Department of Education plans to increase its reliance on in-house resources for planning events and conferences. ED will require all D.C.-based conference with attendance of 250 people or less to take place in one of the Department’s two buildings – saving upwards of $65,000 a year. They will also eliminate a contract with outside providers to conduct Family Educational Rights and Privacy Act training to education community stakeholders. Instead, ED will be using existing staff to conduct the training, saving $70,000 for FY 2009.

These savings reflect the President’s belief that even small savings can add up. We look forward to continuing to working with agencies to identify further savings as part of the 2011 Budget process – and anticipate that agencies will announce these savings in the weeks to come. And we hope that these steps will start to instill a culture of cost-savings and care when it comes to using taxpayer dollars.

Closing Lobbyist Loopholes

2009-07-27T17:32:00Z

Peter R. Orszag, Director

The President believes that a piece of legislation as important as the Recovery Act must be implemented with an unprecedented degree of transparency. That is why, in March, he imposed substantial limits on lobbyists in their communications with the Federal government about the Recovery Act. He also ordered OMB to evaluate agencies’ actual experiences with the restrictions in the first 60 days and then recommend whether any modifications were needed. That review resulted in a decision to tighten the restrictions and, on Friday, OMB updated the formal guidance on Recovery Act communications with lobbyists.

We continue to demand unprecedented transparency for lobbyist contacts and, for the first time in history, we now are bringing transparency to the world of unregistered lobbyists – CEOs and others with special access who would contact an agency or department about their interest in Recovery funding. By expanding the restrictions on oral communications to apply to everybody who tries to exert influence on Recovery Act competitive funding decisions, we reinforce merit-based decision-making and transparency. Tough lines also need to be bright lines, so everyone can understand them. That’s why the updated approach focuses these restrictions on oral communications after formal applications for competitive funding have been filed and before the funds are awarded.

Contacts by registered lobbyists prior to the filing of a formal application remain subject to the previously announced restrictions, which require rapid Internet disclosure of the contact. These rules are by far the toughest ever and go well beyond the minimum disclosures previously required by law. To make that disclosure more consistent, the White House shortly will provide departments and agencies with a new technology tool – so that thorough reporting and information standards will be easily accessible for anyone to see.

CBO and IMAC

2009-07-25T19:19:00Z

Peter R. Orszag, Director

This morning, the Congressional Budget Office (CBO) analyzed proposals to shift more decision-making out of politics and toward a body like the Independent Medicare Advisory Council (IMAC) put forward by the Administration. CBO noted that this type of approach could lead to significant long-term savings in federal spending on health care and that the available evidence implies that a substantial share of spending on health care contributes little, if anything, to the overall health of the nation.  This supports what President Obama has said all along: we can reduce waste and unnecessary spending without reducing quality of care and benefits.

In part because legislation under consideration already includes substantial savings in Medicare over the next decade, CBO found modest additional medium-term savings from this proposal -- $2 billion over 10 years. The point of the proposal, however, was never to generate savings over the next decade. (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.)  Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term. In other words, in the terminology of our belt-and-suspenders approach to a fiscally responsible health reform, the IMAC is a game changer not a scoreable offset.

With regard to the long-term impact, CBO suggested that the proposal, with several specific tweaks that would strengthen its operations, could generate significant savings.  (The potential modifications included items such as providing mandatory funding for the council, rather than having the council rely on the annual appropriations cycle, and requiring independent verification of the expected reductions in program spending rather than relying only on the Medicare actuaries for such verification, along with other suggestions, such as including an across-the-board reduction in payments as a fallback mechanism if the council did not produce proposals that generated adequate savings.)   And if you look back at recent history, one can see why an empowered advisory council would be useful. For example, for the better part of this decade, MedPAC has recommended reducing overpayments to insurance companies for Medicare Advantage plans – to equate those payments with the cost of covering the same beneficiary under traditional Medicare. Yet, nothing happened, costing taxpayers tens of billions of dollars. We can’t afford that type of inertia.

The bottom line is that it is very rare for CBO to conclude that a specific legislative proposal would generate significant long-term savings so it is noteworthy that, with some modifications, CBO reached such a conclusion with regard to the IMAC concept.

A final note is worth underscoring. As a former CBO director, I can attest that CBO is sometimes accused of a bias toward exaggerating costs and underestimating savings. Unfortunately, parts of today’s analysis from CBO could feed that perception. For example, and without specifying precisely how the various modifications would work, CBO somehow concluded that the council could "eventually achieve annual savings equal to several percent of Medicare spending...[which] would amount to tens of billions of dollars per year after 2019." Such savings are welcome (and rare!), but it is also the case that (for good reason) CBO has restricted itself to qualitative, not quantitative, analyses of long-term effects from legislative proposals. In providing a quantitative estimate of long-term effects without any analytical basis for doing so, CBO seems to have overstepped.

Data.gov Surpasses 100,000 Datasets

2009-07-24T13:50:00Z

Peter R. Orszag, Director

Today, Federal CIO Vivek Kundra announced that the number of datasets on Data.gov has increased from 47 to more than 100,000 – with new sets being added continuously.

Data.gov was created to open up the workings of government by allowing the public to easily access datasets generated by the Federal government to perform research, build applications, and conduct analyses. Since its launch in June, Data.gov has received more than 18 million hits.

Public participation and collaboration are critical components to the success of Data.gov. The public can suggest datasets they'd like to see, rate and comment on current datasets, and suggest ways to improve the site. The early response has been very positive. Individuals and organizations are not only viewing the data, but are also improving upon our work by analyzing and repurposing the information. The Sunlight Foundation recently launched Apps for America 2: The Data.gov Challenge to elicit from the public the most innovative applications based on the data available on Data.gov. One of the submissions is FlyOnTime.us. This site uses data from the Bureau of Transportation Statistics, available on Data.gov, to allow consumers to see estimated versus actual arrival times for flights on major commercial carriers.

As part of the movement towards transparency and openness, Vivek Kundra has been working with state and local governments to encourage them to open the warehouses of public data. A few have already taken up the challenge, and you can track their progress by clicking here.

A New Foundation

2009-07-22T16:46:00Z

Peter R. Orszag, Director

Today, in a speech at the Council on Foreign Relations in New York, I spoke about economic recovery and rebuilding a path towards sustained and broadly shared prosperity. I emphasized two aspects of the Administration’s economic plan: the passage and implementation of the Recovery Act and the need for health care reform this year.

Calendar Clarity

2009-07-20T17:50:00Z

Peter R. Orszag, Director

Our upcoming release of the mid-session review (MSR) in August has sparked some speculation. But any speculation about timing games ignores recent history.

In transition years when the presidency changes parties, the full budget and the mid-session review are released later than non-transition years. In our case, we released the full budget in early May and the mid-session review is on track for release in mid-August.

This is right in line with recent past practice. In the first year of President George W. Bush’s administration, the mid-session review was issued on August 22. In President Clinton’s first year in office, the MSR wasn’t released until September 1.

From the moment we released the budget overview in February, I’ve been asked about the changes that could be in the mid-session review. Although the details will be released next month, the basic contours won’t surprise anyone. For one, the deficit picture is very challenging. That’s one reason we have to get health care reform done – and done right – so that we address the single-largest threat to our long-term fiscal stability.

IMAC, UBend

2009-07-17T16:19:00Z

Peter R. Orszag, Director

Game-changers are appropriately on people’s minds as the work on health care continues on Capitol Hill. By now, close readers of the blog know that the Administration wants to make health care reform deficit neutral and bend the health care cost growth curve down in years to come. Both are critical to our fiscal future, and the latter is especially important in order to put the country on a more sustainable fiscal path.

There are a number of steps that can be taken to bend the curve – health IT, investing in research into what works and what doesn’t, and changing incentives so that doctors and hospitals give you better care not just more care. But one of the most potent reforms is a change in the process of health care policymaking: empowering an independent, non-partisan body of doctors and other health experts to make recommendation about Medicare payment rates and other reforms.

Today, the Administration sent a letter to congressional leaders outlining our support for this approach, with a proposal for an Independent Medicare Advisory Commission (as well as Senator Rockefeller’s similar proposal to accomplish this through the existing MedPAC) to detail how one might accomplish this goal.

The Independent Medicare Advisory Council (IMAC) would be an independent, non-partisan body of doctors and other health experts, appointed by the President, confirmed by the Senate, and serving for five-year terms. The IMAC would issue recommendations as long as their implementation would not result in any increase in the aggregate level of net expenditures under the Medicare program; and either would improve the quality of medical care received by the program’s beneficiaries or improve Medicare’s efficiency.

As with the military base-closing commissions, this proposed legislation would require the President to approve or disapprove each set of the IMAC’s recommendations as a package. If the President accepts the IMAC’s recommendations, Congress would then have 30 days to intervene with a joint resolution before the Secretary of Health and Human Services is authorized to implement them. If either the President disapproves the recommendations of the IMAC or Congress passes such a joint resolution, the recommendations would be null and void, and current law would remain in effect.

This approach would free Congress from the burdens of dealing with highly technical issues such as Medicare reimbursement rates while rightly giving them, your representatives, a say in the matter. Moreover, this kind of body would enable the health care system to respond to a very dynamic market and technical landscape, making Medicare policy more responsive and effective in the future. All together, the IMAC proposal would make sure that there is someone always on the beat, looking for ways to bend that curve.

Airing Differences

2009-07-15T19:38:00Z

Peter R. Orszag, Director

Today, the Administration sent a Statement of Administration Policy (SAP) on the National Defense Authorization Act for FY 2010. It emphasizes the President’s commitment to spend taxpayer dollars on what is needed to keep our country safe and secure — and not on programs that are unnecessary or ineffective. To that end, the President made clear that he would veto any bill that supports acquiring more F-22 fighter aircraft beyond the 187 already funded by Congress.

As part of their review of the defense budget, Secretary of Defense Gates and the military leadership put forward a series of recommendations on how to configure our fighting forces and strengthen our national security (these recommendations were part of the Terminations, Reductions, and Savings volume we released with the full FY 2010 Budget in May). One of their key recommendations was that we did not need any more F-22s than have already been funded. Indeed, as early as December 2004, the Pentagon determined that we did not need any more F-22s. In the 2006 Quadrennial Defense Review, the Pentagon again concluded that the number of F-22s already procured was adequate. And both the GAO and CBO have questioned the affordability of continuing this program.

In today’s SAP, the Administration also strongly objects to the addition of $438.9 million for development of the alternative engine program for the Joint Strike Fighter. As President Obama put it: "the Defense Department is already pleased with the engine it has. The engine it has works. The Pentagon does not want and does not plan to use the alternative version. That's why the Pentagon stopped requesting this funding two years ago. Yet it's still being funded." We should not be procuring weapons systems for which we do not have a military need.

For too long, we’ve pursued costly weapons systems that were not suited for the types of threats we face or have proven not to be effective and efficient – wasting hundreds of billions of dollars. That is why the President made his thoughts on the F-22 and JSF funding clear to Congress today, and will work with leaders on the Hill as well as with Secretary Gates and the military leadership to reform Pentagon contracting and keep our Nation safe and secure.

America’s Children

2009-07-10T14:38:00Z

Peter R. Orszag, Director

I have written before about the economic and social imperative of expanding access to education and improving the quality of health care while slowing cost growth. Today, a new report, "America’s Children: Key National Indicators of Well-Being, 2009" was issued by the Federal Interagency Forum on Child and Family Statistics. Unfortunately, this report makes clear that more work remains to be done when it comes to children’s well-being in the areas of health care, economic circumstances, and family and social environment.

"America’s Children: Key National Indicators of Well-Being, 2009" specifically tracks 40 key indicators measuring children’s economic circumstances, health, physical environment and safety, family and social environment, behavior, and education. The data in the report are from 2007, the most recent available, and this is the 11^th such report since OMB joined with six other federal agencies to create the Forum in 1994. I should also note that the report’s Foreword was written by our own Katherine Wallman, OMB’s Chief Statistician.

While the report highlights some positive developments (such as the increase in the proportion of high school graduates who took advanced placement course work in math and foreign languages and a decrease in 10^th graders’ reports of regular smoking), there are some deeply troubling statistics as well:

In 2007, the poverty rate for children rose from 17 percent to 18 percent from the previous year.

12.4 million children in America – or 17 percent of all kids – live in households that are food-insecure.

For the second consecutive year, teen birth rates increased, following a long-term decline beginning in 1991.

The percentage of children ages 3-5 who were read to every day in the last week by a family member declined from 60 percent in 2005 to 55 percent in 2007.

Perhaps most troubling are the large racial and ethnic disparities in the data. For instance, the poverty rate for Black children was 35 percent and for Hispanic children, 29 percent. Black and Hispanic children were more likely to not have health insurance, not attend college, and to live with a single parent.

The data in this report are rich, and taken together, make clear that the status quo is unsustainable. The President’s agenda is therefore focused on giving more children access to a world-class education and closing achievement gaps, reforming health care so that it delivers quality care to more Americans while reducing costs for us all, and building a vibrant, broad-based economy that can give families the stability of a good job and steady income.

The Road to Recovery…

2009-07-08T21:08:00Z

Peter R. Orszag, Director

Today on Capitol Hill, OMB Deputy Director Rob Nabors testified in front of the House Government Oversight and Reform Committee about the Recovery Act. A major focus at the hearing was a report issued today by the Government Accountability Office (GAO), the non-partisan, independent government watchdog. GAO found that Recovery Act spending was ahead of schedule and was helping to mitigate the economic downturn.

In its report, the GAO found:

In New York City, officials estimate that the Recovery Act funds saved 14,000 teachers’ jobs because the school district was able to use the dollars to avoid massive cutbacks in education programs.

Michigan will use part of its Recovery funding to weatherize 32,000 homes, reducing energy usage in each home by an average of 25 percent, and employing an estimated 1,500 people.

In California, state officials had been looking at increasing college tuition by 26 percent. The GAO reports, however, that, because of Recovery funds, any tuition hike will stay in the single digits.

These reports are good news, but it will take time for us to work our way out of the problems we face.

Let’s be clear: we haven’t swapped our propeller hats for rose-colored glasses. Although the pace of job losses has slowed significantly since the Administration took office — we shouldn’t forget that the economy was shedding an average of 691,000 jobs in January, February, and March — the June unemployment numbers are a stark reminder of how deep the economic downturn we face is and how much more work we have ahead of us. Our current economic challenges were years in the making, and they will not be solved overnight. Nonetheless, we will be taking a close look at some of some of GAO’s constructive suggestions to improve Recovery Act implementation and effectiveness. And we’ll also continue our work to improve education, move toward a clean energy future, and reform health care, so that we have a new foundation for broad-based, sustainable economic growth.

For Rob’s written testimony, please click here.

This is IT

2009-07-01T14:18:00Z

Peter R. Orszag, Director

Yesterday, the federal "IT Dashboard" went online — a new, one-stop clearinghouse of information that allows anyone with a web browser to track federal IT initiatives and hold the government accountable for progress and results.

A part of USASpending.gov (an important step toward greater transparency and open government brought about by legislation introduced by then-Senator Obama), the dashboard provides easy access to federal technology spending information, project status updates, project manager contact information, and evaluation reports. The dashboard displays data from 28 agencies, information on more than 7,000 federal IT investments and detailed numbers on more than 780 large projects.

Specifically, you can see which IT projects are working and on-schedule (and which are not), offer alternative approaches, and provide direct feedback to the chief information officers at federal agencies. In effect, it allows you to keep tabs on the people who are responsible for spending taxpayers' dollars for technology. And with approximately $72 billion budgeted for federal IT spending this year, it’s important that these funds are spent wisely.

The IT Dashboard is part of a broader effort by the Administration to bring more transparency to the federal government to boost accountability and drive better performance. Vivek Kundra, the Federal CIO, has driven this effort, and in the days ahead, he will work with Jeff Zients, the Chief Performance Officer, on ways to expand the dashboard concept beyond IT spending and on other initiatives to open up the federal government.

For more on the dashboard and its launch at the Personal Democracy Forum conference in New York yesterday, check out the initial reviews from the Washington Post, Federal Computer Week, New York Observer and Tech President.

A Clean Slate

2009-06-24T18:06:00Z

Peter R. Orszag, Director

As the activity around health care reform heats up, I’m participating in a Q&A with John Dickerson at Slate.com. I hope our back and forth is helpful to OMBlog readers and the general public in understanding this important topic and the Administration’s thinking on it.

Welcome to OMB, Jeff!

2009-06-19T22:49:00Z

Peter R. Orszag, Director

The OMB team gained another important member today as the Senate confirmed Jeff Zients to be the Deputy Director for Management (DDM). The President’s also asked Jeff to serve as the Administration’s Chief Performance Officer (CPO). I’ve blogged about Jeff before, so I won’t go through his resume again. But suffice it to say, he’s a proven leader who has an impressive record of success everywhere he’s worked. And now, with the Senate’s approval, he’s ready to bring his talents to public service.

We’ve got a big job ahead of us. The Washington Post today ("The Memo that Roared") talked about what we’re trying to accomplish in reforming government hiring practices and in retaining highly skilled and effective employees — that’s just one priority Jeff will take on. Add to that list contracting reform, program evaluation, and e-government — and you can see he’ll have a lot on his plate. Jeff Zients is the right man to take the reins — an experienced leader who understands how large organizations work and how to drive their performance.

I can speak for everyone at OMB when I say congratulations to Jeff and his wife, Mary, and to their children, Sasha, Matt, Josh, and Jonny. We’re excited to have Jeff on our team.

Rulemaking 2.0

2009-06-19T20:42:00Z

Peter R. Orszag, Director

Some of you may be following the public dialogue prompted by President Obama’s Open Government Initiative, which was kicked off on May 21^st. Many of the topics discussed have touched on important OMB responsibilities, including oversight of the Federal regulatory process.

I was particularly interested in the blog post on improving online public participation in agency rulemaking. That posting described the federal government’s eRulemaking Program, which seeks to make the process more accessible, participatory, and comprehensible. A key feature of eRulemaking is Regulations.gov, where you can find, read, and comment on proposed rules before they are finalized. As discussed in this and other postings on the Open Government blog, Regulations.gov is considering the use of Web 2.0 technologies to facilitate the public comment process.

With the Open Government Initiative and the Regulations.gov Exchange — where we have suggested possible enhancements to Regulations.gov and asked for public feedback — we are looking for new ways to utilize Web 2.0 tools and provide more convenient, public-centered ways of obtaining input. We also recognize that Web 2.0 tools can be useful even before an agency issues a proposal. For example, instead of driving to a public hearing organized by an agency, perhaps it will be possible to participate in an online meeting from the comfort of your own kitchen or office . Our goal is to improve and modernize well-established legal and administrative procedures so that it is easier for members of the public to participate in the development of regulations.

To provide some historical context, let me briefly describe "Rulemaking 1.0." The federal rulemaking process is based on a seminal law passed by Congress in 1946 — the Administrative Procedure Act (APA). With "notice and comment rulemaking," this statute gives the public a central role in the development of regulations that affect all aspects of our lives, requiring agencies to give the public the opportunity to participate on all proposed rulemakings. Since the APA was enacted, federal regulatory agencies have had to publish the draft text of new regulations in the Federal Register, ask for comments from the public on the proposed requirements, and respond to these comments before issuing the regulations in final form. When it is working well, the APA makes the rulemaking process both more participatory and more transparent — and makes regulation much better.

Admittedly, the full promise of the APA public comment requirement has not been achieved, as most Americans do not regularly peruse the Federal Register, looking for rules on which to comment. This is why we are hard at work on Regulations 2.0, a new and better rulemaking process for the 21^st Century. By engaging the public in web-based tools that are now commonplace in our lives, more people can participate in the rulemaking process and government can learn more from them when considering new regulations. Ultimately, this will make regulations more beneficial and less costly to society.

CBO Points the Way

2009-06-17T12:24:00Z

Peter R. Orszag, Director

As I have written here before, the Administration is committed to the principle that health care reform must be deficit neutral over the next decade (as well as being deficit neutral in the tenth year alone). That means that every dollar spent must be paid for with real savings or revenue proposals that can be scored by the Congressional Budget Office (CBO). I have also written here that in addition to these scoreable offsets, we need to embrace a set of initiatives that will help transform health care: "game-changers" that are critical to the sustainability of health care reform and containing cost growth over the longer term.

Reforms that meet long-term objectives but are not scored as delivering immediate savings are often viewed with an understandable amount of uncertainty and even suspicion. That’s why it was very helpful for CBO to release a letter yesterday afternoon walking through not only some of the challenges of financing major health legislation but also the pathways to a higher-quality, lower-cost health care system over time — the proposals that could help to "bend the curve" on cost growth over the long term.

In a section entitled "Policy Options that Could Produce Budgetary Savings in the Long Run," the CBO letter highlights a number of options, nearly all of which were included in the President’s Budget or have been subsequently included as part of his health reform package, that hold promise for reducing costs over the long term. Some examples of these are listed below.

Create Accountable Care Organizations. As CBO notes, "One prominent example of a structure that may function better would be accountable care organizations formed by physicians and other health care providers." The Administration has proposed a similar approach, which we call Bonus Eligible Organizations.

Bundle Payments to Hospitals and Other Providers. "CBO’s Budget Options volume included an option that would have hospitals receive a single bundled payment from Medicare for both the hospital services they provide and the care that their patients receive in a post-acute setting…this arrangement would provide hospitals with an new incentive to coordinate the care their patients receive after they are discharged and to economize in the use of post-acute care." The Administration also has a proposal to promote efficient provision of acute care through bundled Medicare payments covering hospital and post-acute setting.

Provide Additional Information About Treatment’s Effectiveness. CBO’s letter notes that "Many analysts believe that, because of the broad benefits that additional information could provide, the federal government should fund research on the effectiveness of treatments and should help disseminate the results to doctors and patients." The Administration strongly supports this position; this is why we provided $1.1 billion in the Recovery Act to develop and disseminate information on effective medical interventions.

Expand the Use of Preventative and Wellness Services and Primary Care. As CBO describes, "Many proposals to modify the health insurance system include provisions to expand the use of preventative and wellness services and the use of primary care. Those changes could improve people’s health and the quality of care they receive." In the Recovery Act, the President devoted $1 billion to prevention and wellness interventions to dramatically expand community-based interventions proven to reduce chronic disease.

Reduce Annual Updates in Medicare’s Payments to Reflect Expected Productivity Gains. CBO states "To the extent that providers increase their productivity over time…payment updates overstate the actual increase in costs. Indeed, the Medicare Payment Advisory Council (MedPAC) often recommends that updates be set equal to changes in market-based indexes less overall productivity growth in the economy (as long as access to care and other measures meet appropriate standards)." Just last weekend, the President included a proposal to incorporate productivity adjustments into Medicare payment updates as part of a second set of cost savers to fully fund health reform over a five to ten-year horizon.

Combine increased discretion to change Medicare with a fallback if savings were not obtained. CBO’s letter highlights that "Another way to ensure significant savings in Medicare would be to give the Secretary of Health and Human Services, the Administrator of the Centers for Medicare and Medicaid Services, or some government entity broad discretion to make changes in Medicare to produce savings — but also to impose an across-the-board reductions in payments to providers if sufficient savings were not achieved in other ways." The Administration is considering similar options to provide broader authority to MedPAC or a MedPAC-like body to make changes to produce savings in Medicare.

The goal is to move toward a more efficient health care system (through the game changers) in addition to expanding coverage in a fiscally responsible way. The Administration is eager to consider all options that will strengthen this two-pronged approach, and I’m glad to see that that the list of serious options discussed by CBO is a near match to our own proposals.

Filed on Fleet Street

2009-06-16T14:45:00Z

Peter R. Orszag, Director

I have an op-ed in today’s Financial Times about health care reform.

Readers of this blog are familiar with my argument: Our fiscal future is so dominated by health care that if we can slow the rate of cost growth by just 15 basis points a year (0.15 percentage points), the savings for Medicare and Medicaid would equal the impact from eliminating Social Security’s entire 75-year shortfall.

While some critics have worried about how the Administration will pay for health reform, it’s been pointed out quite ably (here and here) that the President is committed to deficit neutrality and that those concerned about fiscal discipline should support this effort (as the Committee for a Responsible Federal Budget did in their statement issued after the President’s speech). As Congress works on legislation, we will work with members from both sides of the aisle to make sure that health care reform is deficit neutral.

But we also need to go beyond deficit neutrality (based on CBO scoring), and adopt those changes to the health care system that – regardless of whether they score – are crucial to making best practices medicine more universal throughout our system, rather than occurring only in some geographic areas and hospitals. Such best practices offer the potential for a combination of higher quality and lower cost over time than today’s system.

Weekend Reading

2009-06-13T20:08:00Z

Peter R. Orszag, Director

If you’re not outside enjoying the nice summer weekend and, like me, you are a health care policy wonk, there are a few important developments to be following.

First, this morning in the President’s weekly address he laid out the details of $313 billion in additional Medicare and Medicaid savings that can be used to pay for health care reform. Taken on top of what we laid out in our budget, the President now has put forward nearly $950 billion in savings and revenue that can be used for health care reform.

These real, scoreable proposals put us squarely in the ballpark for funding a comprehensive reform in a deficit neutral way – a priority of the President. Over the coming weeks, we’ll work with Congress to make sure that every dollar is paid for.

Second, Jonathan Skinner, a professor of economics at Dartmouth and a co-author of the 2008 Dartmouth Atlas of Health Care, has an excellent post on the Economix blog defending the work he and his colleagues have done in documenting the wide variations in health care costs across the nation. The massive variations in the standard of care represent hundreds of billions hundreds of billions of dollars on health care that does nothing to improve health outcomes. Cutting these inefficiencies and replicating the kind of medicine being practiced in high-quality, lower-cost areas – such as Green Bay, WI where the President just visited -- present a real opportunity to bring down the growth in health care costs and put our nation on a sustainable fiscal path.

Finally, on Monday the President will address the American Medical Association in Chicago.

Debating Health Care

2009-06-08T18:59:00Z

Peter R. Orszag, Director

Beginning last week with posts by two bloggers I read regularly and then today with a lengthy editorial in the Wall Street Journal and a blog post by the always provocative Richard Posner, observers are raising some tough and direct questions about health care reform. Some of the pieces were skeptical – and even critical – of our plans. I welcome this debate, and hope to use this blog as a way to foster a dialogue on this vital topic.

So let me take this post to respond to some of the main questions raised.

First, how are we going to pay for health care reform?

I have posted on this previously, but it’s worth repeating. The Administration is committed to the principle that health care reform must be deficit neutral over the next decade. That means that every dollar spent on this effort must be paid for – with real savings or revenue proposals that can be scored by the Congressional Budget Office (CBO). The offsets are not in any way theoretical; they are specific proposals that have been determined by CBO to reduce spending or raise revenue.

In particular, the President has already put forward in his budget specific proposals to generate $635 billion for health care reform – with roughly half coming from Medicare and Medicaid efficiencies and half from limiting the itemized deduction rate for the wealthiest Americans to what it was when Ronald Reagan was President. In addition, last week in a letter to Senators Baucus and Kennedy, the President wrote that he will be laying out an additional $200 billion to $300 billion in Medicare and Medicaid savings. That will take our total "pay-fors" to approximately $900 billion or more, and put us in a good position to fully fund health reform in a deficit neutral way.

Let me stress again: these are not "speculative cost savings." We are not "hop[ing]…that the $120 billion annual cost will not have to be funded at all, but instead will be offset by various reforms that the Administration proposes." What we are proposing are real, scoreable proposals that have been deemed by CBO (which has a good reputation for analytical rigor and a healthy skepticism about such proposals) to save money or raise revenue.

In addition to insisting that reform be deficit neutral based on these CBO-scored proposals, we also embrace a set of initiatives that will help transform health care and mitigate the increase in health care costs – steps such as health IT, research into what works and what doesn’t, prevention and wellness, and changes in incentives so that Americans get the best care not just more care. These "game-changers" are critical to the sustainability of health care reform; without them, cost growth will eventually creep back up. But they will not pay for health care reform; that is from the Medicare and Medicaid savings and new revenue. Instead, they should help to lower the rate of health care cost growth and sustain reform over time, and thereby help us achieve a more efficient system.

Second, will we be stifling innovation if we remove regional variations in health care practice and expense?

It’s certainly true that medical innovation is essential to improving treatment – and thus health outcomes – for us all. And it’s also true that we need to encourage doctors and researchers to explore and experiment in ways that lead to medical advances that save lives and improve their quality. But, today, the American health care system doesn’t always reward the best medical innovations – and one need look no further than McAllen, Texas to see that this is so.

Despite having a demographic profile similar to El Paso, Texas, and despite having had similar Medicare expenditures as El Paso as recently as 1992, McAllen’s spending grew about five times faster in the years since than in either El Paso or the United States as a whole. In return, McAllen got more medicine (more tests, more surgeries, more time in waiting rooms), but it didn’t get better health – McAllen scores lower than El Paso (and the U.S. average) in measures of health care quality. McAllen "innovated," and certain doctors and hospitals were financially rewarded, but I think we can all agree that this isn’t the kind of innovation we desire.

To get the most from innovation, we need to align incentives toward quality rather than intensity. The Mayo Clinic, synonymous the world over with cutting-edge medicine, has among the country’s lowest Medicare costs per beneficiary. Smaller medical markets, too, have managed to achieve such results: Grand Junction, Colorado is one of the lowest-cost and highest-quality places in the country to be treated. We need to reform the health care system so that it rewards the right kind of innovation – the Mayos, not the McAllens. And the Administration’s proposals aim to do precisely that through bundling of payments, incentives to reduce hospital readmission rates, and (as discussed below) a process through which MedPAC’s recommendations would enjoy fast-track protections in Congress.

Third, won’t the system be unable to respond to changes in health care because of the intensity of health care politics?

This is a very valid concern. And that’s why the President has expressed his openness to proposals that will give MedPAC, a Medicare advisory commission established by a Republican Congress, more power. Currently, MedPAC – a non-partisan, highly technical body – issues pages of recommendations to make Medicare more efficient, and these reports are read by wonks like me but tend to gather dust on bookshelves. One proposal would require Congress to give an up or down vote on MedPAC’s proposals similar to how the defense base-closing commissions have worked in the past. This kind of solution could help to insulate highly technical MedPAC recommendations from undue political influence, while keeping policymakers accountable. This approach could help us keep up with an evolving health care market and continually re-orient it toward quality.

Overall, we can’t afford to continue with the status quo. Health care reform is a necessity for millions of American families and for the long-term fiscal and economic health of the nation. As we move forward this summer with these changes, you can be sure that health care reform will be paid for – and that we will strenuously debate how to do it.

Building Rigorous Evidence to Drive Policy

2009-06-08T12:39:00Z

Peter R. Orszag, Director

One of the principles motivating the President’s Budget is that, as a nation, we haven’t been making the right investments to build a new foundation for economic prosperity — and we need smarter investments in education, health care, and social services.

But, in making new investments, the emphasis has to be on "smarter." Many programs were founded on good intentions and supported by compelling anecdotes, but don’t deliver results. This is one reason the President directed OMB to review the federal budget. In the first year of this effort, we identified more than 100 terminations, reductions, or other areas of savings that take nearly $17 billion off the federal government’s bottom line next year alone.

Although this is a good start, our review faces a major challenge: much of the time, it’s hard to say whether a program is working well or not. Many initiatives drive funds to the local level, but don’t track how they are spent; others spend dollars bit by bit, so the results are hard to see.

Rigorous ways to evaluate whether programs are working exist. But too often such evaluations don’t happen. They are typically an afterthought when programs are designed — and once programs have been in place for awhile, evaluating them rigorously becomes difficult from a political economy perspective.

This has to change, and I am trying to put much more emphasis on evidence-based policy decisions here at OMB. Wherever possible, we should design new initiatives to build rigorous data about what works and then act on evidence that emerges — expanding the approaches that work best, fine-tuning the ones that get mixed results, and shutting down those that are failing.

At one level, we need to invest more in program evaluation — and the President’s Budget does. For example, we call for an expansion of the Institute for Education Sciences and growth in the evaluation budgets at the Department of Labor and the Corporation for National and Community Service. We’re working with YouthBuild, a program the President supports, to implement its first-ever rigorous national evaluation.

Beyond investing more in evaluations, we are also designing new initiatives with evaluation standards built into their DNA. One example is the Department of Education’s "Grow What Works and Innovation Fund." And at the Department of Health and Human Services, the Administration has proposed two new efforts that meet very different needs but have in common the rigorous use of performance data.

One initiative supports home visitation. Home visitation programs send a trained professional to provide help and support to vulnerable parents — teaching everything from child nutrition to reading at home to anger management. For the best-researched of these initiatives, rigorous evaluations have shown reductions in the incidence of low birthweight, child abuse and neglect, and even run-ins with the criminal justice system a decade or more later.

The other initiative is about preventing teen pregnancy. Teen pregnancy is linked to many troubling outcomes for both teenagers and their children. After a long period of decline, the rate of teen pregnancy rose again in the last two years for which we have data. Here, too, proven models exist for working with teenagers to bring teen pregnancy down.

For these two very different subjects, we’re using a similar, two-tiered approach. First, we’re providing more money to programs that generate results backed up by strong evidence. That’s the top tier. Then, for an additional group of programs, with some supportive evidence but not as much, we’ve said: Let’s try those too, but rigorously evaluate them and see whether they work. Over time, we hope that some of those programs will move into the top tier — but, if not, we’ll redirect their funds to other, more promising efforts.

This design differs from the typical approach. We haven’t simply created a block grant and told states they can do whatever they want, nor have we dictated a particular program design and told everyone to follow it. Instead, we’ve said that we’re flexible about the details of the program; we only insist that most of the money go toward the programs backed by the best available evidence, and the rest to programs that are promising and willing to test their mettle.

This two-tiered structure will provide objective criteria to inform our decisions on which home visitation and teen pregnancy models to invest in. It will also create the right incentives for the future. Organizations will know that to be considered for funding, they must provide credible evaluation results that show promise, and be ready to subject their models to analysis. As more models move into the top tier, it will create pressure on all the top-tier models to improve their effectiveness, so they continue to receive support.

By instilling a culture of learning into federal programs, we can build knowledge so that spending decisions are based not only on good intentions, but also on strong evidence that carefully targeted investments will produce results.

McAllen Redux

2009-06-04T14:50:00Z

Peter R. Orszag, Director

Last Thursday I blogged on Atul Gawande’s New Yorker essay on McAllen, Texas – the little Texas town with the dubious honor of being one of the most expensive health care market in the country. As Dr. Gawande noted, in 2006 Medicare spent about $15,000 per enrollee here – close to twice the national average, and three thousand dollars more per person than McAllen’s per capita income of $12,000.

Over the past week, the example of this Texas border town has remained in my mind, and I became increasingly interested in this extreme case of regional variation in healthcare costs. As a lover of data, I asked my friend at the Dartmouth Atlas Group, Jonathan Skinner, if there was more there that he could tell me about the McAllen phenomenon. What he showed me was striking.

First, while McAllen is currently a major cost outlier, this wasn’t always the case. As recently as 1992, healthcare costs in McAllen were comparable to costs in El Paso, a county and city 800 miles down the border with similar demographic characteristics, and to the national average.

Over the next decade and a half, the respective Medicare service utilization patterns changed dramatically between these two markets. While El Paso continued to track just below national averages for per capita Medicare expenditures, McAllen’s per capita expenditures grew to nearly twice the national average – driven primarily by local norms that tend towards heavier use of discretionary services – such as diagnostic testing and surgical versus less invasive interventions – for which there are no clear clinical guidelines.

For example, at the end-of-life, nearly half of all McAllen Medicare patients see 10 or more physicians, significantly more than the national rate of 30 percent (and in Grand Junction, Colorado, it is just 11% – more than four times less than the rate in McAllen). Also, McAllen’s Medicare patients have 50 percent more cardiac surgery procedures as the national average (about 24 per 1000, versus about 16 per 1000), four times the ambulance spending during end-of-life, and eight times the home health care costs. Medicare spending per enrollee in the last two years of life also varies greatly among McAllen and other peer hospitals:

But all of this money doesn’t seem to buy the Medicare Beneficiaries of McAllen markedly better health or better quality care. While the 4.7 percent mortality rate in McAllen is slightly below El Paso (5.0 percent) and the national average (5.1 percent), it is on par with much lower cost Grand Junction. According to CMS’s Composite Quality of Care ratings McAllen’s score is about 70; lower than Texan peers El Paso and Dallas, about 18 points below the US average, and about 22 points below Grand Junction.

Medicine is practiced differently across regions, cities, towns, even hospitals. As patients, we hope that this variation is driven by norms of practices that provide us with the best and most appropriate care for what ails us. But in looking at an example like McAllen, Texas – a town where Medicare care costs have risen disproportionately relative to national and local benchmarks, and very quickly – it is hard not to ask what our return is on this high-taxpayer investment. From what we can measure, it’s not better health. It is simply more care.

Race for the Cure

2009-06-03T18:48:00Z

Peter R. Orszag, Director

Transportation Secretary Ray LaHood has organized an Administration team to run in this Saturday’s Global Race for the Cure. I’m joining with Ray and others from the Obama Administration – not only to run with friends and colleagues, but more importantly to remind all of us of the ultimate purpose of health reform: to help people enjoy better health and better lives. So for the 1.3 million women diagnosed each year with breast cancer, I hope to see you there – running, walking, or cheering! (If for some reason I don’t say hello, it’s only because a Toby Keith song is encouraging me on my iPod.)

The Budget Director’s Bottom Line: Thank You

2009-06-02T18:04:00Z

Peter R. Orszag, Director

Putting together the President’s Budget is no easy task—in a transition year, it’s particularly challenging. Work that is usually done in six or eight months is done in six or eight weeks. That we were able to put together a budget—while also working on the enactment and initial implementation of the Recovery Act—is a reflection of the dedication and quality of OMB’s career staff. (One of the most enjoyable parts of becoming OMB director is the opportunity to interact with the outstanding people who work here.)

Click here to see a list of all the OMB staff—from every level, across every office—who contributed to the FY 2010 Budget. It’s through their analytical insight, long hours, and decades of cumulative knowledge and experience as public servants that we were able to turn the President’s vision for this country into the hard numbers and concrete proposals needed to make the Budget a reality.

Thank you to the fabulous OMB staff!

A “Belt and Suspenders” Approach to Fiscally Responsible Health Reform

2009-06-01T15:07:00Z

Peter R. Orszag, Director

As the debate about health care reform takes center stage this summer, more and more commentators will be focusing – rightly – on the impact of reform on the federal budget.

On Friday, I blogged about the fiscal effects of health care reform. Since then, the cost containment efforts we are undertaking and their potential impact on long-term health care cost growth have gotten a lot of attention. Our cost containment falls into two categories: Medicare and Medicaid savings that are key to achieving scoreable savings over the medium term but that by themselves would be unlikely to generate substantial long-term efficiency improvements in the health system, and "game-changers" that are unlikely to generate significant scoreable savings in the medium term but that are crucial to moving toward a health system that addresses the issues discussed in Atul Gawande’s compelling New Yorker article. (These game changers include, among other steps, items such as patient-centered quality research and re-orienting financial incentives through bundling and payment for quality rather than quantity of services delivered. After attending innumerable meetings of the Institute of Medicine and other gatherings of health policy types, I believe we are aggressively pursuing virtually all the game changers that have been put on the table by analysts. If anyone has ideas for what we’re not doing that could be done, please let me know! I also believe that since health care constantly evolves, it is impossible to specify today all the steps that will be necessary to reduce cost growth in a sustainable manner over the long term. Instead, cost containment must be a dynamic process, in which different processes are employed in an ongoing effort to make the system more efficient.)

What should not be overlooked in all these discussions of cost containment measures, however, are the backstop fiscal constraints we are demanding of a plan in the short to medium term: We are insisting that health reform be deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.

This belt-and-suspenders approach means we are not just banking on the long-term impact from the game changers to protect the budget. We also are demanding quantifiable cuts, efficiencies, and revenue-raisers so that the budget is not adversely impacted in the medium-term. That is to say, if the long-term savings from the game-changers materialize as expected, we wind up with a more efficient health care system and a better fiscal position. If they don’t, then at worst, we have a deficit-neutral plan that will not worsen our fiscal situation.

This isn’t the "voodoo economics" of supply-side tax cuts – not only because of the weak empirical basis for the claims behind such tax cuts, but also because proponents of supply-side economics were not willing to offset the cost of tax cuts through hard, verifiable offsets in the medium-term. Our approach, by contrast, not only attempts to address the key forces behind inefficiencies and rising costs in our health care system, but is also backstopped by hard-headed budget accounting and clear-eyed fiscal discipline.

Health Care Reform and Fiscal Discipline

2009-05-29T14:47:00Z

Peter R. Orszag, Director

When I give public talks on health care reform, the question I receive most often is "given the government’s fiscal situation, how can it make sense for the government to take on new spending commitments as part of health reform?" The answer is two-fold. First, health care reform has two components: cost containment provisions and expanded coverage. In the near term, the impact of expanded coverage will temporarily dominate, and health care reform will therefore temporarily increase government spending. Over time, however, the impact of the cost containment provisions will accumulate, and the net impact will be a reduction – and perhaps a dramatic one – in government spending. Second, while we are waiting for the cost containment provisions to take hold, we are insisting that health care reform be deficit neutral. In other words, the Administration is committed to a health care reform that is at least deficit neutral over 10-years -- and deficit-reducing, potentially to quite a significant degree, over the longer term.

The two figures below represent stylized versions of health care plans similar to those being discussed in Congress. The first figure shows the impact of reform on federal health care spending. The solid line shows baseline federal spending on Medicare and Medicaid under the assumption that health care costs continue to grow at historic rates. The three dotted lines show health care spending under reform. In the three reform scenarios excess health care cost growth is reduced by 0.5, 1.0, and 1.5 percentage points, respectively. With health care reform, spending initially increases because health care coverage expands, but reform also slows the growth of health care spending. What we see is that it takes only 10 to 16 years after reform for Federal health care spending to be lower than it would have been in the absence of reform.

The second figure shows the impact of health reform on the budget deficit. Within the 10-year budget window, the impact of health care reform is negligible because the plan is fully paid for; the short-term increase in spending will be offset with additional revenues. Over the longer term the budget situation improves considerably – because health care spending declines and because taxable compensation increases.

McAllen Medicine

2009-05-28T15:25:00Z

Peter R. Orszag, Director

I’ve never been to McAllen, Texas, but after reading Atul Gawande’s essay about this border town in the most recent New Yorker, it sounded very familiar.

As I have written and talked about before, one of the biggest signals of inefficiency in American health care is the massive regional variation in cost and health outcomes. As the Dartmouth Health Atlas has made clear, medicine is practiced differently in different regions across the country, different cities, and even among different hospitals in the same city. And yet the higher cost areas and hospitals don’t generate better outcomes than the lower-cost ones. The result is an estimated $700 billion a year spent on health care that does nothing to improve patient health, but subjects you and me to tests and procedures that aren’t necessary and are potentially harmful – not to mention wasteful.

McAllen, Texas is the poster child for this sort of variation. As Gawande writes:

McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

Gawande goes on to explain that despite these high costs, the outcomes in McAllen are not significantly better than peer cities such as El Paso or the national average.

The McAllens of our country present a real challenge and opportunity for health care reformers. The challenge is to reconfigure the incentives and norms in our health care system so that we promote better medicine, not just more medicine. The opportunity presented by the nation’s McAllens is that we can realize significant savings by bringing these towns more in line with the more efficient ones – without compromising the quality of care. This is the thinking behind the Recovery Act’s unprecedented investments in health IT, patient-centered research, and prevention and wellness, as well as our ongoing efforts to reform the health care system. Among the reasons we are committed to passing health care reform this year is that, should Gawande return to McAllen in a decade’s time, we want him to find a community that is not only healthier, but also wealthier from spending less on health care.

Democratizing Data

2009-05-21T17:45:00Z

Peter R. Orszag, Director

Today, I'm pleased to announce that the Federal CIO Council is launching Data.gov. Created as part of the President's commitment to open government and democratizing information, Data.gov will open up the workings of government by making economic, healthcare, environmental, and other government information available on a single website, allowing the public to access raw data and transform it in innovative ways.

Such data are currently fragmented across multiple sites and formats—making them hard to use and even harder to access in the first place. Data.gov will change this, by creating a one-stop shop for free access to data generated across all federal agencies. The Data.gov catalog will allow the American people to find, use, and repackage data held and generated by the government, which we hope will result in citizen feedback and new ideas.

Data.gov will also help government agencies—so that taxpayer dollars get spent more wisely and efficiently. Through live data feeds, agencies will have the ability to easily access data both internally and externally from other agencies, which will allow them to maintain higher levels of performance. In the months and years ahead, our goal is to continuously improve and update Data.gov with a wide variety of available datasets and easy-to-use tools based on public feedback and as we modernize legacy systems over time.

Democratizing government data will help change how government operates—and give citizens the ability to participate in making government services more effective, accessible, and transparent.

Best Places to Work in the Federal Government: Double Bronze!

2009-05-20T22:06:00Z

Peter R. Orszag, Director

This morning I was very pleased to speak at the "Best Places to Work in the Federal Government" awards breakfast – an event sponsored by the Partnership for Public Service and American University's Institute for the Study of Public Policy Implementation to honor agencies that have distinguished themselves by excelling at employee engagement and satisfaction. And, I'm happy to report that OMB placed third – tied with CBO.

The Best Places rankings, released today, provide a comprehensive assessment of employee satisfaction and commitment across federal agencies. Using data from the Office of Personnel Management 2008 Federal Human Capital Survey, the Best Places survey ranks 260 agencies, large and small, and agency sub-components on a 100-point scale using ten elements that help to capture employee satisfaction and engagement. Roughly 212,000 federal employees participated in the survey (about 10% of the total federal workforce). The Best Places website provides, the rankings plus agency profiles that include demographics and variations in employee responses broken out by demographic groups. Historical data and new data analysis tools are also provided, allowing users of the site to analyze trends and track performance against benchmarks. (For the curious, the government-wide Best Places index score is 63.3 – up 2.4% since the last survey in 2007.)

This survey is an excellent resource that deserves more than just a day in the spotlight, and for those agencies scoring high on the Best Places list, a spot on the agency recruiting page – it offers useful metrics that should be incorporated into how we manage government. Max Stier of the Partnership for Public service noted this morning that the Best Places to Work list offers agencies an incentive to improve, a roadmap for where to target efforts, transparency for jobseekers and the public, and an oversight metric for agency managers and for Congress. I agree wholeheartedly, and expect to incorporate this benchmark data into the 2011 budget process.

This is not only important for good management; it's also critical for the future of government. As the baby boom retires, the federal government will have to fill several hundred thousand positions in the next four years. To draw the best and the brightest people into federal service, we should follow the lead of the highest-ranking agencies to make careers in government service more rewarding, enriching, and attractive to talented people.

The themes highlighted in this morning's breakfast were particularly relevant to me today as I spent the afternoon testifying before the House Subcommittee on Financial Services, Committee on Appropriations on OMB's FY 2010 budget submission. My testimony can be found here. In addition to discussion of our own budget request, you'll see in my testimony a focus on how OMB plans to make the government work better via such tools as increased transparency, data-driven policy, and workforce transformation.

Misdiagnosis

2009-05-15T12:57:00Z

Peter R. Orszag, Director

A media report this morning makes a mountain out of a molehill – suggesting that the commitment earlier this week by health care providers and insurers to reduce cost growth was overstated. Here is what the groups stated in a letter they signed: "we will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate—saving $2 trillion or more." The groups have since clarified that they may need to "ramp up" to the 1.5 percentage point reduction in the growth rate, which is understandable.

Allowing some time for a ramp-up does not change the fundamental point, which I highlighted in an op-ed in the Wall Street Journal this morning: the groups have committed to significant reductions in the growth rate, thereby recognizing that substantial efficiencies can be captured in the health system. Some ramp-up time also does not materially affect the long-term impact from reducing the growth rate, on either national health expenditures or the Federal budget. The sooner we enact fundamental health reform, the sooner we can begin the process of improving quality and reducing cost in the health system.

Op-Ed in Today’s Wall Street Journal

2009-05-15T11:59:00Z

Peter R. Orszag, Director

I have an op-ed in the Wall Street Journal today on a topic of great personal interest and central to the nation's future: the immense fiscal challenge of rising health care costs, and the opportunity embedded within that challenge to reduce costs in the health care system without sacrificing quality.

Medicare Trustees to America: Bend the Curve!

2009-05-12T21:09:00Z

Peter R. Orszag, Director

Today, the Trustees of the Medicare and Social Security Trust Funds released their annual reports detailing the financial operations and long-term positions of the Medicare and Social Security Trust Funds. It should come as no surprise that the Trustees’ Reports continue to show long-term financing challenges in both programs, and that those facing Medicare are much greater and more imminent than those of the combined Social Security Trust Funds. Why is this happening? The retirement of the Baby Boom? Mostly not – it’s largely due to the growing costs of covering each Medicare beneficiary, rather than to the growing number of beneficiaries in the Medicare program.

That’s why I’ve said on numerous occasions – and the President said yesterday in his remarks – that reducing the growth rate of health care costs is the single most important fiscal issue we face as a country—and why doing so will relieve the pressure on the wages and pocketbooks of American families. This is also why the President met Monday with a wide array of leaders from many different sectors of the health industry who pledged to take aggressive steps to cut the growth rate of national health care spending by 1.5 percentage points each year on average over the next 10 years—a pledge that would save our country more than $2 trillion through lowered costs for consumers, businesses, and government. According to rough preliminary estimates, slowing health care cost growth by 1.5 percentage points per year could add four years of solvency to the Medicare Trust Funds. To fully understand how this small reduction in health care cost growth can help secure Medicare and Medicaid, look at the graph below.

This graph, and the report issued today, should reinforce all our efforts to get health reform done this year.

Clearing the Air

2009-05-12T19:45:00Z

Peter R. Orszag, Director

Media reports today are suggesting that OMB has found fault with EPA’s proposed finding that emissions of greenhouse gases from motor vehicles contribute to air pollution that endangers public health and welfare. Any reports suggesting that OMB was opposed to the finding are unfounded.

The quotations circulating in the press are from a document in which OMB simply collated and collected disparate comments from various agencies during the inter-agency review process of the proposed finding. These collected comments were not necessarily internally consistent, since they came from multiple sources, and they do not necessarily represent the views of either OMB or the Administration. In other words, we simply receive comments from various agencies and pass them along to EPA for consideration, regardless of the substantive merit of those comments. In general, passing along these types of comments to an agency proposing a finding often helps to improve the quality of the notice.

Perhaps more importantly, OMB concluded review of the preliminary finding several weeks ago, which then allowed EPA to move forward with the proposed finding. As I wrote on this blog on April 17, the "proposed finding is carefully rooted in both law and science." I also noted: "By itself, the EPA’s proposed finding imposes no regulation. (Indeed, by itself, it requires nothing at all.) If and when the endangerment finding is made final, the EPA will turn to the question whether and how to regulate greenhouse gas emissions from new automobiles."

The bottom line is that OMB would have not concluded review, which allows the finding to move forward, if we had concerns about whether EPA’s finding was consistent with either the law or the underlying science. The press reports to the contrary are simply false.

Last but Not Least – The Final Installment of the FY 2010 Budget

2009-05-11T13:32:00Z

Peter R. Orszag, Director

Today, we released the final volumes of the President’s FY 2010 Budget. These volumes include the Summary Tables, which show aggregate budget projections for the next 10 years; Historical Tables, which offer a wealth of budget data over the last century; and Analytical Perspectives, which provides a detailed discussion of certain budget concepts and Administration policies.

Last week, we also released the Budget Appendix, giving program-by-program information on the Administration’s policies, and also Terminations, Reductions, and Savings, identifying roughly $17 billion in savings for FY 2010 that the Administration has proposed by eliminating or scaling back over 100 programs that don’t work or whose costs are excessive.

These volumes give the complete details for the Administration’s Budget submission and are almost completely in-line with the Budget overview that the Administration submitted in February.

The Budget volumes contain a vast amount of information, which can be daunting to even the most avid budget wonk. Here, I want to boil down how these new Budget volumes compare to the overview released in February, and how this Budget now fits into the ongoing budget process.

Full Budget Compared to February’s Budget Overview

First, let me discuss two changes compared to the February overview:

Deficit projections. OMB projects that the deficit will be about $90 billion higher in FY 2009 and also in 2010 than it did in February. The deficits in these years, now projected to be 12.9 percent and 8.5 percent of GDP, respectively, are driven in large part by the economic crisis inherited by this Administration.

The change in the deficit estimates reflects upward technical revisions in light of new information regarding the collection of receipts, financial stabilization efforts, and other federal programs. (Technical revisions reflect additional data on, or expected changes in, government receipts or expenditures, other than because of changed assumptions about major macroeconomic variables such as the size of the economy, the rate of inflation, or the unemployment rate. The latter are called economic revisions.) Treasury now estimates that overall federal revenue will be less than was projected in February by between $30 billion and $50 billion in each of this year and next. We also have more information about the severity of the financial crisis facing the nation, and this is reflected in new, higher estimates for the cost of financial stabilization efforts undertaken through TARP and by the FDIC.

Over the 10 years from 2010-19, cumulative budget deficits increase by about $140 billion, or an average of about 0.1 percent of GDP. This is largely due to Treasury’s technical revisions of lower projected receipts.

Health reserve fund. The Administration has made a historic commitment to health reform by putting on the table $635 billion in savings to be devoted to paying for health reform this year. The health reserve fund is almost exactly the same size as it was in the in the February overview and is still about evenly divided between Medicare and Medicaid savings and additional revenue. But, as I have discussed elsewhere, the composition of the additional revenue measures has now changed somewhat, with the addition of new enforcement measures and loophole closers to make up for technical re-estimates of the original proposal.

Second, there are many aspects of the Budget that remain the same as in February. Perhaps most importantly:

Key priorities. The Budget provides many new details that were not available in February, but the Budget’s key priorities—and the resources devoted to them—are almost exactly the same as in the February overview. The Budget continues to call for significant and long overdue investments in education, health care reform, and clean energy, while cutting the deficit in half over four years and providing a tax cut to 95 percent of working Americans.

Economic assumptions. The economic assumptions remain the same as in February. The economic assumptions will be revisited as part of the Mid-Session Review this summer, which is the traditional point at which an administration updates its underlying economic assumptions to reflect new information.

The Budget documents released today include a sensitivity analysis, describing the effects of alternative economic assumptions on budget projections. These can be found in Chapter 12 of Analytical Perspectives.

Where This Fits in the Budget Process

The recently passed Congressional budget resolution and the full Budget being released now are both essential documents in the ongoing budget process, but they serve somewhat different functions. The budget resolution sets out a broad framework for Congress to make decisions about specific revenue and funding policies for the remainder of the budget process, whereas the President’s Budget sets out the Administration’s proposals on a program-by-program basis and is the starting point for negotiations over specific appropriations and other fiscal policies.

Even if they aren’t carbon copies, the budget resolution and the full Budget approach many of the Nation’s key challenges in very similar ways—both cut the deficit in half by the end of the President’s first term, while making investments in health care, education, and clean energy. We expect to work closely with Congress in the weeks and months ahead to reach solutions that will meet these priorities and put our Nation on a course toward economic recovery, fiscal discipline, and a new foundation for economic growth.

The Health Care Reserve Fund: A Historic Commitment to Reform

2009-05-09T13:30:00Z

Peter R. Orszag, Director

As I have said more than a few times before (even on this blog) reducing health care costs is the key to the country’s fiscal future and also to providing relief to American families from rising health care bills. To that end, the Administration is committed to reforming health care this year and to doing so in a deficit-neutral manner.

We began that process in February in the budget overview, which included a $634 billion health care reserve fund -- a substantial down payment toward health care reform. On Monday, when we release the Summary Tables and Analytical Perspectives of the Budget, you will see that the full Budget does exactly the same thing and includes $635 billion in a health care reserve fund.

As in the February overview, about half of the health care reserve fund in the full Budget comes from savings in Medicare and Medicaid that would improve the health care system’s efficiency and quality. There is a change (the "$635 billion" in the above paragraph is not a typo). In the time since we released the February overview, the health care reforms in the reserve fund have been re-estimated to save about $7 billion less over the next 10 years, while the limitation on itemized deductions has been re-estimated to save about $51 billion less over this period. We closed this gap by dedicating some other tax enforcement measures and loophole closers totaling $60 billion. This then brings the reserve fund in the full Budget to almost exactly the same total as before.

How do we do it?

First, we improve tax compliance and eliminate unjustified tax breaks for narrow interest groups. For instance, the Budget proposes to:

Expand information reporting that will help the IRS catch tax cheats. The expanded information reporting is expected to raise more than $10 billion over the next 10 years, by allowing the IRS to better enforce existing tax law.
Target valuation games played by those facing estate and gift taxes that allow them to undervalue transferred property, raising another $24 billion over the next 10 years.
Immediately clamp down on a tax loophole that is giving an unintended, multibillion dollar windfall to paper companies, saving more than $1 billion this year and next.

Second, as in the February overview, the Budget would also limit the tax rate at which families making more than $250,000 can take itemized deductions to a maximum of 28 percent. This is a matter of fairness. If you’re a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and make that same donation, you currently get a $350 deduction—more than twice the break as the teacher. Limiting itemized deductions for high-income Americans would help restore balance to the tax code, and any effect on charitable giving is likely to be swamped by other Administration policies. The best way to boost charitable giving is to jumpstart the economy and raise incomes—and the purpose of the Recovery Act enacted in the Administration’s first month in office was to do precisely that. The limitation on itemized deductions is now expected to raise about $267 billion over the next 10 years, which we will devote entirely to health care reform. All together, these policies would raise a total of $635 billion to be devoted to health care reform—almost exactly the same total amount as in the February overview.

It is true—more savings than this will be needed to pay for comprehensive health care reform in its entirety. But I believe that the reserve fund, in itself, represents a historic commitment, and I look forward to working with Congress to bring about—and pay for—fundamental health care reform this year

Using Statistics to Drive Sound Policy

2009-05-08T19:15:00Z

Peter R. Orszag, Director

This morning I delivered a speech (pdf) at a Joint Symposium of the Committee on National Statistics and the American Academy of Political and Social Science on a topic near to my (admittedly wonkish) heart—the role of Federal statistics in developing and executing good public policy.

As I’ve noted in this space before, OMB wears many hats. Among OMB’s lesser known roles is oversight of the Federal statistical system—a range of agencies that produce the data that drive nearly all aspects of what we do as a government.

The President has made it very clear that policy decisions should be driven by evidence – accentuating the role of Federal statistics as a resource for policymakers. Robust, unbiased data are the first step toward addressing our long-term economic needs and key policy priorities.

In my speech this morning, I noted two particular areas where more and better data would be useful: health care and education. In health care, bending the curve on cost growth will require more information about how we’re spending our health dollars, the health outcomes we’re producing, and how specific interventions rank against alternative treatments. In education, better longitudinal data on the progress of individual students, which can be linked to specific programs and teachers, will go a long way to helping us understand what works better – and what doesn’t -- and as a result, where to target scarce resources to bolster student achievement.

Sound data by themselves are not sufficient to create sound public policy decisions, but the Administration has been clear that data – importantly including the stream of data that comes from Federal statistical sources -- and evidence are a necessary and crucial component in our policy process.

Determining What Works, Line by Line

2009-05-07T14:25:00Z

Peter R. Orszag, Director

We in the Administration have spoken often about the President’s Budget heralding a new era of responsibility—an era in which we not only do what we must to lift our economy out of recession, but in which we also lay a new foundation for long-term growth and prosperity. This means making long overdue investments and reforms in health care, education, and energy. It also means restoring fiscal discipline. We cannot put our nation on a course for long-term growth with uncontrollable deficits and debt, and we no longer can afford to tolerate investments in programs that are outdated, duplicative, ineffective, or wasteful.

That’s why the Budget we’re releasing today includes a separate volume, Terminations, Reductions, and Savings, which identifies more than 100 terminations, reductions, or other areas of savings that take nearly $17 billion off the federal government’s bottom line next year alone. About half of the savings for the next fiscal year are from defense programs, and about half are from non-defense programs.

The programs in Terminations, Reductions, and Savings are ones that do not accomplish the goals set for them, do not do so efficiently, or do a job already done by another initiative. They include these ten:

LORAN-C ($35 million). This long-range, radio-navigation system has been made obsolete by GPS.
Abandoned Mine Lands Payments ($142 million). This program now pays to clean up mines that have already been cleaned up.
Educational attaché, Paris, France ($632,000). The Department of Education can use e-mail, video conferencing, and modest travel to replace a full-time representative to UNESCO in Paris, France.
Los Alamos Neutron Science Center refurbishment ($19 million). The linear accelerator housed here was built 30 years ago and no longer plays a critical role in weapons research.
Even Start ($66 million). The most recent evaluation found no difference between families in the program and those not in it across 38 of 41 outcomes. Strengthening early childhood education is accomplished through significant investments in proven, more effective programs such as Head Start, Early Head Start, and the Early Learning Challenge Fund.
Christopher Columbus Fellowship Foundation ($1 million). Due to high overhead, the Foundation would spend only 20 percent of its 2010 appropriation on the fellowships it awards.
Advanced Earned Income Tax Credit ($125 million). This program benefits very few taxpayers, and has an extremely high error rate: GAO found that 80 percent of recipients did not meet at least one of its requirements.
Javits Gifted and Talented Education Program ($7 million). Grants from this program go to only 15 school districts nationwide, and there are no empirical measures to judge their efficacy.
Public Broadcasting Grants ($5 million). USDA made these grants to support rural public broadcasting stations in their conversions to digital broadcasting. That transition is now almost complete.
Rail Line Relocation Grants ($25 million). This program, duplicative of a merit-based program, is loaded with earmarks.

The steps we are detailing in Terminations, Reductions, and Savings are part of the Administration’s larger effort to change how Washington does business and put the nation’s fiscal house in order. Today represents a significant installment in our commitment to review the federal budget line by line.

But our efforts to restore fiscal responsibility have already begun. To date, we have taken the following steps to cut waste, save taxpayer dollars, and make government more effective:

The Budget includes an historic down payment on health care reform, the key to our long-term fiscal future.
The Budget will cut the deficit in half by the end of the President’s first term and was constructed without commonly used budget gimmicks that, for instance, hide the true costs of war and natural disasters.
The Budget will bring non-defense discretionary spending to its lowest level as a share of GDP since we began keeping records in 1962.
The President has announced a contracting reform effort that will greatly reduce no-bid contracts and help to save $40 billion. In support of this effort, Secretary of Defense Gates, in consultation with our nation’s military leadership, unveiled an unprecedented effort to reform defense contracting.
The President directed agency heads at the first Cabinet meeting to identify at least $100 million in administrative savings.
The President personally called on the congressional leadership to pass PAYGO laws so that Congress will be required to adhere to a simple principle: to pay for what it spends.

Now, every one of the programs listed in our Terminations, Reductions, and Savings volume has a supporter, and there will be vocal and powerful interests that will oppose different aspects of this Budget. I am under no illusions that change will be easy, but after an era of profound irresponsibility, I believe that Americans are ready to put problem-solving ahead of point-scoring and to reconstruct an economy built on a solid foundation.

That’s why I know the President will work with Congress to reform and transform Washington, to make these needed cuts so that we use taxpayer dollars to invest in what works and put our nation back on the path toward prosperity for all Americans.

This Week in Budget News

2009-05-04T19:35:00Z

Peter R. Orszag, Director

This week is another busy one at OMB: we are releasing the full account-level budget on Thursday.

Close readers of this blog may be wondering: didn’t you release the budget in February? Didn’t Congress already adopt its budget resolution?

The answer is: welcome to life in a transition year. As we noted in February, that document (pdf) was a budget overview, laying out the Administration’s priorities and the broad outlines of the budget, including the agency topline numbers. What it didn’t include was the program-by-program information on the discretionary side of the ledger – nor the details on several of the Administration’s mandatory and tax policies, such as the international tax and tax compliance initiatives that were rolled out today. (The budget resolution that was adopted by Congress last week similarly provides the framework for the year, not the detailed legislation necessary to implement that framework.)

So what’s to come?

This Thursday, we will release the Appendix, which contains full programmatic detail. In other words, we will fill in the details below the agency-by-agency topline numbers on the roughly 40 percent of the budget this coming fiscal year that will be decided upon in the appropriations process. We will also be releasing a separate volume of terminations, reductions, and savings, highlighting the programs that we are eliminating or scaling back. These documents are critical for the appropriators on Capitol Hill to get started on filling out the details to the budget resolution they just adopted.

Then, next week, we will put out the Analytical Perspectives volume, Historical Tables, and summary tables. Analytical Perspectives provides a variety of additional information about the Nation’s fiscal policies. The Historical Tables present budget data over an extended period, generally from 1940 or earlier, to 2010 or 2014. The summary tables were already released along with the budget overview in February, but we will re-release them (with some relatively minor updates and changes) next week.

We decided to split the release of these volumes -- presenting the micro view this week, and the macro view next week -- to make it easier for the public and Capitol Hill to digest these thousands of pages of information.

No matter how it’s being rolled out, the budget includes all the information you need to assess our spending priorities and the savings we seek. I look forward to hearing your feedback.

Congratulations to Xav Briggs

2009-05-01T22:00:00Z

Peter R. Orszag, Director

Champagne corks are flying (or more accurately, Diet Coke cans are being opened) here at OMB to congratulate Xavier de Souza Briggs for being awarded tenure by the Massachusetts Institute of Technology today.

Xav is not your regular academic. He has had an unusually rich and varied career, inside and outside of academia, which is one reason we asked him to re-enter public service when the President took office in January. He has been: a planner in the South Bronx and other communities struggling to adapt to massive economic and demographic changes, an environmental consultant going building to building to assess the risk of contamination and help keep people safe, and a senior official at the U.S. Department of Housing and Urban Development. In academia, he has been a deeply committed educator and researcher -- first at Harvard’s Kennedy School of Government and then at MIT’s Department of Urban Studies and Planning.

I’m very pleased that he’s now Associate Director for General Government Programs here at OMB, working on so many issues of concern to the public and to this President—creating jobs now and investing in long-term economic growth through infrastructure, small business, and more; advancing climate science and the protection of our oceans and coastal communities; rethinking the federal approach to disaster recovery; charting a new future for transportation, housing, and the sustainability of our urban and rural regions; improving immigration services and enforcement; and other key issues.

I first got to know Xav through his books. He has done award-winning work on economic opportunity and inequality in America’s changing cities and metropolitan regions, on the implications of rapidly growing ethnic diversity for our country, and on the character of democratic problem-solving—or what he calls ‘the civics of leading change’—at the local level.

Take his 2005 book The Geography of Opportunity (which won the highest book award in planning). It looks at the persistent challenge of segregation by race and class in our society and why the issue of housing choice became even more important after the 1960s, as America became more economically unequal and more racially diverse at the same time. This work has helped to shift thinking about how housing choices and policies contribute to outcomes in many other areas—school success or failure, health, employment, and so on.

Xav’s next book, Moving to Opportunity: The Story of an American Experiment to Fight Ghetto Poverty, will come out this summer. It looks at the effort to find real solutions for some of our society’s most intractable social problems—the violence, poverty, and stigma associated with life in high-risk, inner-city ghetto neighborhoods.

It helps, when you work where we do, to bring local knowledge to bear, and Xav’s work is all about that: what happens to neighborhoods, cities, regions. He’s looked at the very challenges that squarely confront us now: restructuring older regional economies—including those based in heavy industry, such as cars and steel—to compete in a new era, investing smarter in the next generation, tackling unsustainable growth patterns.

So we congratulate Xav and his family on being awarded tenure; it is a fitting recognition of his contributions to the academy and the country.

Congratulations to Emmanuel Saez

2009-04-27T17:47:00Z

Peter R. Orszag, Director

My co-author and friend Emmanuel Saez was awarded the John Bates Clark Medal on Friday. The prize, which is awarded to the best American economist under the age of forty, is one of the highest honors the economics profession can bestow upon one of its own. Emmanuel is deeply deserving of the honor—his work on income inequality and taxation has helped to shape my own thinking on these matters, and it had no small influence on the President's Budget.

Emmanuel is perhaps best known for his detailed examination of how wages at the top end of the U.S. income distribution have evolved over the past century. He and his co-author Thomas Piketty discovered that the overall pattern for the share of income accruing to those in the top 10 percent is U-shaped (see chart 1 below). Thus, the share going to the top 10 percent was around 45 percent from the mid-1920s to 1940, but then declined to approximately 33 percent during World War II. Emmanuel attributes this fall-off to the sharp reduction in capital incomes brought about by the war and the revenue increases needed to finance the war effort. After the war, the share of income accruing to the top 10 percent remained essentially flat until the late 1970s, when it began climbing dramatically, ultimately surpassing its pre-war highs. Indeed, in 2006, the top 10 percent earned 50 percent of national income, a higher share than even in 1928, the peak year of the "roaring twenties" stock market bubble.

Chart 1: Share of Total U.S. Income Accruing to the Top 10%, 1917-2006

Perhaps even more interesting than his findings about the evolution in earnings for the top 10% is what he found when he isolated data from just the top 1 percent of earners—namely, that virtually all the historical fluctuation in the share of income going to the top 10 percent was due to fluctuations in income within the top percentile alone (see chart 2 below). Stated differently, the dramatic changes in income inequality seen in the United States over the last century are almost entirely a function of how well the very highest earners did at any given point in time.

Chart 2: Decomposing the Top 10% of U.S. Income Share into Three Groups, 1913-2006

And in the most recent past, the very highest earners did very well indeed, capturing almost three-quarters of total income growth in the economic expansion of 2002 to 2006, while the remaining 99 percent of the U.S. population split among themselves the final 25 percent of the increase. (What makes this trend all the more concerning is something that Emmanuel and his co-authors demonstrated in another paper: that this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)

Emmanuel's work on income inequality has helped to point the way for the Administration in its pledge to rebalance the tax code, with a tax cut going to 95 percent of working Americans while asking those at the very top to contribute more. The inequality that has arisen over the past three decades is not going to go away overnight, and it has been driven by many factors—including a decline in the growth rate of college-educated workers. But where the prior administration used changes in the tax code to exacerbate these trends, this Administration thinks that the tax code should be used to mitigate them because an economy in which all can enjoy success is one that is strong for us all.

Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it. I look forward to reading his work for years and decades to come.

Nudging Along

2009-04-20T23:33:00Z

Peter R. Orszag, Director

One of the most important intellectual developments of the past several years that has had a huge impact on my own thinking has been the rise of behavioral economics. By taking the insights of psychology and observed human behavior into account, we now have a fuller picture of how people actually behave – instead of just reducing them to the hyper-rational utility-maximizers of Econ 101.

Cass Sunstein, while not an economist, has been at the forefront of this intellectual vanguard – most recently, with his acclaimed book Nudge, co-authored with Richard Thaler – and I am pleased to announce that the President today nominated Cass to be the Administrator of the Office of Information and Regulatory Affairs here at OMB.

In this role, Cass will be able to shape a regulatory structure that is rooted in commonsense to achieve the values and ends that the President and the American people seek. For years, Cass has been that rare specimen – an academic whose writing and thinking has had a real effect on policymakers. Indeed, Cass is the most cited law professor on any faculty in the United States. Now, Cass is entering the arena, and I am eager to work with him to implement the President's regulatory reform agenda.

Here’s the full press release.

The Case for Reform in Education and Health Care

2009-04-20T15:59:00Z

Peter R. Orszag, Director

This morning I delivered a speech before the Association of American Universities, an association of 62 major public and private research universities in the United States and Canada. The slides from my talk can be found here (pdf).

The talk examined both education and health care from the perspective of both hard heads and soft hearts (taken from the title of a book* written by Alan Blinder about twenty years ago, which had a major influence on my thinking regarding economic policy).

My talk first addressed education. Substantial evidence exists that growth in educational attainment has been a key engine in generating U.S. economic growth over much of our nation’s history. This is why it is troubling that the growth rate in U.S. educational attainment has slowed dramatically for the generations entering adulthood around 1970 and thereafter. Consider this: the average educational attainment of natural-born U.S. citizens jumped from just over seven years of schooling for those born a decade after the Civil War to just under 14 years of schooling for those born in the years immediately following World War II. By contrast, the average years of schooling for those born in 1950 versus those born in 1975 rose only by about one year.

This slowdown in the growth rate of educational attainment is a problem both in terms of attenuated economic growth (the hard head part) and increased economic disparities (the soft heart part). As Claudia Goldin and Lawrence Katz have shown, both effects are traceable to a decline in the relative supply of highly educated workers – which dampens economic growth while also increasing the wage premium for being a college grad. Said differently, the fewer college grads we produce, the slower overall economic growth and the higher the salaries for those fortunate enough to go to college. And since we know that those from lower-income families are less likely to go to college and graduate (as compared with students from higher-income families with similar test scores), the overall result is that we perpetuate inequality.

This is why the Administration worked to temporarily expand the maximum Pell Grant award in the Recovery Act to $5,550 and why the President’s Budget has called for making that expansion permanent. We also have proposed to make Pell a stable and predictable mandatory program that is indexed in future years to better keep up with the growth in tuition costs. It’s also why we proposed to dramatically simplify the federal student aid application. And it is why the Administration is increasing investment from early childhood to high school, while pursuing a host of reforms to improve elementary and secondary schools’ quality – from strengthening the effectiveness of teachers, to refining accountability systems, to unleashing more successful charter schools to serve students most in need. Taken together, this will make it easier for lower-income kids to apply and go to school and move us closer to the President’s goal of leading the world in college graduation rates by 2020.

One might think that health care costs were unrelated to educational trends, but that would be wrong. For years now, there has been a long-running trend toward declining State investments in public universities, as growing health care costs come to crowd out States’ investment in higher education. For example, from the late 1970s to the early part of this decade, State appropriations for higher education have declined from about $8.50 out of every $1,000 in personal income to only a little more than $7 out of every $1,000 in personal income – a decline of roughly 15 percent. The declining rate of investment by States in their institutions of higher learning can also be seen in the declining salaries that faculty members at public universities have commanded over the past three decades relative to their counterparts at private universities. At the same time, these pressures yield tuition hikes, program cuts, and a general strain on our public universities.

Now, many of you have heard me go on about how important it is to reform health care in order to bend the curve on long-term costs and get our nation on firmer fiscal footing – and this data shows how critical that effort is. When we say that health care is consuming too much of our GDP, we are not just citing an abstract statistic. These costs have real implications in sectors across our economy, limit our economic growth, reduce opportunities, and harden inequalities.

This is why the Administration is making historic investments through the Recovery Act in efforts that will be crucial in bending the curve on the growth of health care costs while improving the health outcomes we can expect from our medical system. We are investing over $19 billion in health information technology to help computerize Americans’ health records, which will reduce medical errors and enhance the array of data that physicians and researchers have at their disposal. We are investing $1.1 billion in comparative effectiveness research, which will yield better understandings of which medical treatments work and which do not. And we are investing $1 billion for prevention and wellness interventions, which will help reduce the impact of chronic diseases and reduce costs. And in the President’s budget, we make a historic down payment on fundamental health care reform – a commitment also embodied in the budget resolutions passed in Congress.

Improving the efficiency of health care is hard-headed, but it’s also soft-hearted. For example, while life expectancy in the United States has been steadily increasing for the past several decades, these recent gains in life expectancy have not been shared equally across socioeconomic groups, and health differences by educational attainment and income have been growing. Health reform could help to attenuate these trends.

Our goal, plain and simple, is to get health care reform done this year. It’s a goal that all Americans should embrace including our universities. After all, if we can get costs under control, it will make it easier to invest in opening the doors to college for all.

* Alan S. Blinder, Hard Heads, Soft Hearts: Tough-minded Economics For A Just Society (1988)

Move Over R2, CPO is Here

2009-04-18T13:00:00Z

Peter R. Orszag, Director

Lately, OMB has been consumed with the "B" in our title – the budget – but an equally important part of our mission is the "M" or management of the federal government. If tax dollars are not spent wisely or efficiently, it can undermine the goals that specific programs are trying to accomplish. On top of that, mismanagement and waste as well as a lack of transparency for citizens into government operations erodes trust in government, making it even harder for us as a society to tackle the serious challenges we face.

I’m happy to report that this morning the President announced his intention to nominate a new Deputy Director of Management and Chief Performance Officer, Jeffrey Zients. Jeff has 20 years of business experience as a CEO, management consultant, and entrepreneur with a deep understanding of business strategy, process reengineering, and financial management. After a short stint in management consulting, Jeff served as CEO and Chairman of The Advisory Board Company and Chairman of the Corporate Executive Board. These two firms are leading providers of performance benchmarking and best practices across a wide range of industries. They assist senior executives at over 5,000 businesses to improve the efficiency of their operations. During his tenure, the companies grew from 120 employees to over 1,200 and revenues and profits increased by more than tenfold.

Currently, Jeff is the Founder and Managing Partner of Portfolio Logic, an investment firm focusing primarily in business and healthcare services companies, and an active member of several corporate boards in diverse industries including consumer products, communications and healthcare. Jeff is a graduate of Duke University (which will make staff meetings really interesting this winter as our Deputy Director, Rob Nabors, is a proud UNC alumnus!), and lives in Washington with his wife and kids.

The President decided to make the Deputy Director for Management the government’s first Chief Performance Officer because the goal is not just good management or solid operations, but generating good results for the American people. Through this performance lens, government operations become a way to drive better results, not an end in and of itself. Specifically, Jeff will lead the President’s efforts on contracting and procurement reform, improve government productivity by helping to root out error and waste, build a performance agenda across government, and enhance the transparency of the government’s finances so that citizens are empowered to hold us all accountable for improved stewardship and performance. He will work closely with the also just-announced Chief Technology Officer, Aneesh Chopra, and the Federal Chief Information Officer, Vivek Kundra.

I know I speak for everyone at OMB when I say that we are excited to work with Jeff to help make government agencies more efficient, effective, transparent, and accountable.

Important EPA Finding

2009-04-17T22:09:00Z

Peter R. Orszag, Director

In addition to its other responsibilities, OMB reviews proposed regulations and coordinates an interagency review process. We have now concluded review of the Environmental Protection Agency’s (EPA’s) proposed finding that emissions of greenhouse gases from motor vehicles contribute to air pollution that endangers public health and welfare. Now that review is concluded, the endangerment finding will be published in the Federal Register and subject to public comment.

EPA's proposed finding closely follows the language of the Clean Air Act, and includes two components.

First, certain greenhouse gas emissions constitute air pollution that may reasonably be anticipated to endanger public health and welfare.

Second, emissions from motor vehicles cause or contribute to that air pollution.

The proposed finding is carefully rooted in both law and science. In Massachusetts v. EPA (2007), the Supreme Court found that greenhouse gases count as "air pollutants" under the motor vehicle emissions provisions of the Clean Air Act, and signaled that EPA should answer the question whether greenhouse gas emissions are air pollution that endangers the public health and welfare. After an extensive analysis of the scientific evidence, and a careful process of interagency review, the EPA proposes to answer that question in the affirmative.

By itself, the EPA’s proposed finding imposes no regulation. (Indeed, by itself, it requires nothing at all.) If and when the endangerment finding is made final, the EPA will turn to the question whether and how to regulate greenhouse gas emissions from new automobiles. The President has made it clear that he wants to move the nation toward clean energy, and that part of that effort involves a legislative approach to reducing greenhouse gas emissions under a "cap and trade" program. Such a program would be more effective and efficient than most types of regulation. While such a program is being debated in the Congress, however, the Administration is following both the science and the law with regard to the Clean Air Act.

Learn more about the finding here.

Changing the Game in Health Care

2009-04-13T21:30:00Z

Peter R. Orszag, Director

The National Journal blog entry on the Administration’s proposals on health care reform highlights some important issues. But is also contains some red herrings – like the idea the Administration’s proposals won’t reduce costs.

To be clear, every proposal the President put forward as part of his health care proposal in the FY 2010 Budget was vetted and estimated by the Department of Health and Human Services actuaries. Estimated savings from these proposals total $316 billion over ten years. The Congressional Budget Office has analyzed these proposals and concluded that the savings are close to what was estimated in the President’s Budget. So the savings here are very real. But the real story is in the steps that may not "score" to any substantial degree in the short run but that will likely prove crucial over the long term.

In particular, the President’s proposals represent an aggressive plan to start "changing the game" in health care. Len Schaeffer and Dennis Cortese put it very well in their responses to the blog: we have to shift our focus and rethink roles in health care. We can’t simply continue paying on a piecework basis; we have to adapt financial incentives to promote smarter and better care.

As an example of steps in the "game changing" mode, I recently blogged about a set of proposals designed to reduce costly hospital readmissions. In addition, the Administration has put forward other proposals designed to promote hospital quality and efficiency, to make the market for biological treatments more competitive through a new pathway for generic biologics, and to promote more efficient payments in Medicare and Medicaid. And we have already enacted historic incentives to promote health information technology and to invest in developing critically needed information about how treatments work and which ones work better -- information doctors and patients can use to make more informed decisions about courses of treatment.

The bottom line is that health care reform must be deficit neutral in the short run and deficit reducing in the long term. We have to have scoreable savings in the short term to finance additional benefits or coverage. But we must do more than that. We have to move aggressively to change the rules of the game so that we slow the growth in long term costs. Many of these things may not have substantial short-term savings, but over the long term will contribute to more efficient arrangements in the health sector.

Economic Downturns and Crime

2009-04-09T18:35:00Z

Peter R. Orszag, Director

The economic downturn imposes significant costs on families. But does it also increase crime?

Mayor Bloomberg recently mentioned to me that crime in New York City has declined despite the ongoing recession – which seemed surprising to me, so I looked into it a bit more. Homicide in New York City is indeed down 23 percent so far in 2009, and crime overall is down 13 percent (pdf). On the other hand, some experts believe crime will increase as the recession continues because "offenders feel a sense of desperation and believe there is no hope to improve their situation." So what are the facts?

There is vast amount of economic research on the linkages between crime and the economy. Most of this research finds that property crime rises during recessions – albeit only moderately. In a recent review of the literature, Steve Levitt concluded that a five percentage point increase in unemployment rates generates about a five percent increase in property crime rates. So a neighborhood that typically has 20 property crimes a year might experience one more during a severe recession.

For violent crime, especially for homicide rates, the research findings are more ambiguous. Indeed, some studies find that that homicides decline during recessions (see for example, Raphael and Winter-Ebmer, 2001). One reason may be that alcohol use tends to decline during recessions (another potentially surprising finding), and that the reduction in alcohol use reduces violent crime, as suggested in a 2008 paper by Garrett and Ott.

Such a potential link between economic downturns, alcohol, and crime highlights the fact that crime is not the only behavior that changes during recessions, and there are complicated interactions that can lead to what might appear to be counterintuitive results.

Other results suggest that automobile accidents decline when the economy turns down, because people tend to drive less. Unfortunately, one indicator that tends to go up during recessions is suicide. A variety of studies find that suicide rises during economic downturns, though most of the studies are old and the effect tends to be modest.

The bottom line is that recessions, which impose substantial economic costs, have complicated and sometime surprising effects beyond purely economic ones. Although property crime increases moderately, as do suicides, the evidence suggests that violent crime shows no strong relationship with the business cycle.

New Study on Hospital Readmissions

2009-04-08T17:26:00Z

Peter R. Orszag, Director

Estimates suggest that as much as $700 billion a year in health care services delivered in the United States cannot be linked to improved health outcomes – and one reason is that we have incentives for more care rather than better care. A key objective of health care reform must therefore be to align incentives toward better care. In this spirit, two of the proposals the Administration put forward as part of our health care reserve fund involved better incentives for reducing hospital readmissions.

A recent article in the New England Journal of Medicine highlights this issue ("Rehospitalizations Among Patients in the Medicare Fee-for Service Program," published April 2, 2009). The study finds that approximately 20 percent of Medicare beneficiaries discharged from a hospital were rehospitalized within 30 days. The authors estimate rehospitalizations accounted for about $17.4 billion of the $102.6 billion in hospital payments from Medicare in 2004.

The NEJM study includes evidence suggesting that many rehospitalizations could be prevented. For example, the study documents an alarming lack of physician follow-up visits after discharge from a hospital. Indeed, about half of the patients who were rehospitalized within 30 days of being discharged had no bill for an outpatient physician visit between the time of discharge and rehospitalization. The lack of follow-up could contribute to unnecessary rehospitalizations. In addition, the study found that rehospitalization rates vary substantially by geographic area; the rehospitalization rate was 45 percent higher in the five states with the highest rates than in the five states with the lowest rates. (These rates are calculated in a way that controls for the severity of illness across hospitals, so the difference in rates can’t be explained by the fact that some hospitals have sicker patients than others.)

As in many other aspects of health care, we could significantly reduce costs and improve quality by moving towards the medical practices adopted in the more efficient parts of the country. Under the Administration’s proposal, hospitals with high rates of readmission will be paid less if certain patients are re-admitted to the hospital within 30 days, beginning in 2012. Our proposal would also bundle payments to hospitals to cover not just hospitalization, but also care from certain post-acute providers for the 30 days after hospitalization. This combination of incentives and penalties should lead to better care after a hospital stay and result in fewer readmissions—saving roughly $26 billion over ten years.

IOU, an Explanation

2009-04-07T13:22:00Z

Peter R. Orszag, Director

How much does the federal government owe? It might seem like a simple question to ask those of us wearing the green eyeshades, but there are lots of different concepts used to answer it. For example, at the end of fiscal year 2008:

Debt held by the public net of financial assets— the measure I find to be most meaningful — stood at $5.3 trillion (37 percent of GDP).
Debt held by the public was equal to about $5.8 trillion (41 percent of GDP).
Gross debt equaled $10.0 trillion (70 percent of GDP).

What do each of these concepts represent?

Let me proceed in reverse order, and begin with gross debt. Gross debt has two components: debt held by the public—which I will discuss more in a moment— and intragovernmental debt.   Intragovernmental debt is, essentially, debt that the government owes to itself—as of the end of last year, it totaled $4.2 trillion. The majority of this debt is issued to the Social Security Trust Fund, and most of the remainder is issued to other trust funds, such as the Civil Service Retirement and Medicare Trust Funds. These trust funds are required to invest their surpluses in government bonds. While the federal government will certainly make good on the IOUs issued to these trust funds, they should not be counted when assessing the financial state of the federal government as a whole.

One branch of the government issuing debt to another branch may make one branch poorer relative to the other branch—but it does not affect the overall financial state of the government.   For example, when I tell my daughter and son that I owe them each $10 for their allowances, I am poorer, and they are richer—as a family, though, there is no change in our overall finances. That’s why the Congressional Budget Office, the Office of Management and Budget (including under the prior administration), and the Government Accountability Office all agree that gross debt is not a meaningful metric for assessing the government’s current fiscal position.   Yet, the world being what it is, this number is quoted often.

If gross debt isn’t a useful concept, debt held by the public gets us closer. Debt held by the public measures the amount that the federal government owes to others, so it is a meaningful concept when gauging the government’s fiscal condition. If I hand an IOU to my neighbor’s son in exchange for mowing the loan, my family’s finances become poorer, and the same is true of the federal government.

That’s not the end of the story, however. As I said at the beginning of this post, I think the most meaningful measure of federal debt is debt held by the public net of financial assets. If I take a $100 loan from my bank and stick that amount into my bank account without spending any of it, my family and I aren’t poorer, because even as I owe $100 to my bank, my bank owes $100 to me. On net, and as long as the new asset is equal in value to the new liability, there’s no change in my overall financial state. There’s a similar effect when the federal government borrows money in order to invest in financial assets.

As the federal government has acted to stabilize the financial sector amidst the worst financial crisis since the Great Depression, the federal government has purchased significant financial assets—such as preferred equity stakes in Fannie Mae and Freddie Mac. The federal government will likely take a loss on these purchases, but the assets have value. And just as what my bank owes me should be netted against what I owe the bank in determining the health of my personal finances, the value of these assets should be netted against publicly held debt in determining the health of the government’s finances.

I end with a word of caution. Debt held by the public net of financial assets is the most meaningful measure of current federal debt, but it has its limitations. In particular, it does not capture the federal government’s fiscal position going into the future. The federal government’s obligations aren’t limited to paying off federal bonds. It also has future obligations to continue defending our country; investing in education, energy, and infrastructure; and paying Social Security and Medicare benefits.   On the other side of the ledger, the federal government has future assets beyond those currently carried on the books—namely, the future tax revenues it will collect.

So even as debt held by the public net of financial assets is the best measure of where we are now, the long-term fiscal gap provides the best measure of the underlying imbalance between spending and revenue. That is why this Administration is so committed to cutting the deficit in half by the end of the President’s first term and reforming the health care system – and bending that cost curve – this year.

Not Your Reg-ular Blog Post

2009-03-30T23:53:00Z

Peter R. Orszag, Director

I know most of OMBlog’s readers are budget wonks – or "propellerheads" to use the now-popular White House term – but OMB also takes a very active and serious role in the management of the federal government, and that includes the regulatory agenda.

Each of the past four presidents used Executive Orders to require "regulatory review" by OMB’s Office of Information and Regulatory Affairs (OIRA). The basic idea was that agency regulations, no less than agency budgets, should be subject to review by an institution close to the President, with the ability both to assess regulations and to coordinate the process of interagency review. All four presidents required agencies to pay close attention to cost-benefit analysis.

Two presidents went further and laid out a strategy for how these reviews should be undertaken. In 1981, President Reagan set forth governing principles in Executive Order 12291 (issued in 1981 and followed by the first Bush Administration). That order required the benefits of significant regulations to "outweigh" their costs, required agencies to produce a formal Regulatory Impact Analysis (identifying both benefits and costs), called for agency exploration of alternatives, and established a basic structure for OIRA review of regulations.

In 1993, President Clinton issued Executive Order 12866, which kept many of the essential ingredients of the Reagan-Bush process but also made important changes. Executive Order 12866 softened the emphasis on cost-benefit analysis, requiring the benefits of regulation not to outweigh but to "justify" its costs. It offered a brief reference to "distributive impacts" and "equity." It imposed new disclosure requirements on OIRA, above all when OIRA was meeting with people in the private sector. It specified, in some detail, the institutional structure for regulatory review, offering details about the respective roles of agencies and OIRA. It also said that in the event of a conflict between OIRA and the agencies, the Vice President would act as arbiter.

A great deal has changed since 1993. That is why on January 30, the President issued a memorandum tasking OMB to produce recommendations for a new Executive Order on regulatory review. The purpose is to identify new principles to govern the regulatory process. We are in an unusually challenging time, and regulation will play an important role in our efforts to respond to many current problems. As the President wrote in his memo, "I strongly believe that regulations are critical to protecting public health, safety, our shared resources, and our economic opportunities and security. While recognizing the expertise and authority of executive branch departments and agencies, I also believe that, if properly conducted, centralized review is both legitimate and appropriate as a means of promoting regulatory goals."

As part of OMB’s instructions, the President asked us to consider some fundamental questions facing modern government, including how the public should participate in the rulemaking process, how we can expand disclosure and transparency, how to best use cost-benefit analysis; how to address distributional considerations, fairness, and concern for the interests of future generations ; how to use the behavioral sciences in formulating regulatory policy; and what might be the best tools for achieving public goals through the regulatory process.

In response to the President’s memo, we published a notice in the Federal Register, asking for comments and suggestions; to date, we have received over 140 responses. We have invited comments by a broad array of specialists in the field of regulatory policy. And we have had a number of meetings with people in the private sector. We even extended the original comment period because there was so much public interest. To those of you who sent us your thoughts, thank you. (And if you have not commented and would like to, there is still time; the comment period closes at midnight March 31, 2009. You can send your comments here.)

Climbing the Hill

2009-03-25T21:26:00Z

Peter R. Orszag, Director

Today is a big day in the budget world as the House and Senate Budget Committees kicked off Congressional action on the federal budget with their markups of the budget resolutions. We are very pleased with these respective "Chairman’s marks" as they are 98 percent in line with our proposal. And most importantly, the Congressional proposals accomplish the President’s four top priorities in the budget: reducing the costs of health care while boosting quality and coverage; giving our kids a better education so they can succeed in the global economy; investing in clean energy and reducing our reliance on foreign oil; and cutting the deficit we inherited in half before the end of the President’s first term.

I started the day with a conference call with reporters to talk about the House and Senate plans. In the spirit of openness, the complete transcript is here (pdf). If you’d like to hear my opening comments click here (wav).

As the budget resolutions move from committee to the House and Senate floor, I’ll be sure to keep blogging about what’s going on.

CBO's New Numbers

2009-03-20T17:55:00Z

Peter R. Orszag, Director

CBO released its re-estimate of the President’s Budget today. As expected, it showed a worsening of both the economic outlook and the fiscal picture since CBO’s January report.

Some will argue that CBO’s worsened projections are a reason for inaction in the face of today’s large economic and fiscal challenges. But differences in inherently uncertain long-term deficit projections are not a reason to ignore serious issues that have for too long been overlooked and that will only grow worse with time.

First, CBO’s projections, like any budget projections, are subject to a high degree of uncertainty. (Trust me…I know the former CBO Director quite well!) As an example of how much budget projections can shift, at this point last year, CBO was projecting a 2009 baseline deficit of $207 billion. It is now projecting a baseline deficit of about $1.7 trillion. CBO itself has estimated the margin of error around its 5-year deficit projection to be about 5 percent of GDP in either direction—which means the confidence interval around the 2014 deficit is plus or minus about $900 billion.

Also note that a key driver of the new CBO deficit numbers after 2014 are estimates about long-term economic growth—where CBO is somewhat more pessimistic than the consensus. For example, CBO projects long-term real economic growth that declines to 2.2 percent per year. Blue Chip pegs long-term real growth at 2.6 percent per year and the Federal Reserve forecasts long-term real growth of between 2.5 and 2.7 percent—the same as the Administration, which is projecting real long-term growth of 2.6 percent. These differences may not seem big, but over time they accumulate. And since the deficit is the difference between two much larger numbers—spending and revenue—even relatively small differences in assumptions can have a magnified impact on the deficit. (As an example, imagine that spending is $1,050 and revenue is $1,000, so the deficit is $50. If revenue declines by just 10 percent, the deficit triples to $150.)

Second, and more importantly, the CBO report only underscores the severity of the economic and fiscal crisis the Administration has inherited. There is need for urgent action to get our economy moving again, invest for the future, and put the nation on a sustainable fiscal path. The President’s Budget has proposed to do exactly this by addressing our big challenges head on:

Invest in health care, since rising health care costs are a burden not only for the federal government but also for families, companies, and states;
Invest in education and in our most precious resource—our people—through a major new commitment to early childhood education, scaling up innovative new programs in our schools, and opening up the doors to college;
Invest in clean energy technologies like wind power and solar power, advanced biofuels, and fuel-efficient cars—investments that would help free us from foreign oil, create millions of jobs that pay well and can’t be outsourced, and make clean energy the profitable kind of energy; and
Cut the deficit in half by 2013.

The new CBO numbers do not change our commitment to these goals or our ability to achieve them. I am confident that the budget resolutions both the House and Senate will start to consider next week will reflect these objectives.

Funding for Domestic Programs in the Budget

2009-03-18T18:46:00Z

Peter R. Orszag, Director

How much does the Administration’s FY 2010 Budget increase domestic programs this coming year? If you listen to some critics, you would think that the answer is "the biggest increase ever." But if you approach the question analytically and make an apples-to-apples comparison, it becomes clear that the Budget proposes to increase next year’s domestic funding by a relatively modest 3.2 percent. And a substantial majority of that increase is devoted to making overdue investments in education, infrastructure, and our nation’s veterans.

An Apples-to-Apples Comparison

The President’s Budget requests that funding for domestic discretionary programs grow from $500 billion to $515 billion from 2009 to 2010, after making adjustments to compare these two years on an apples-to-apples basis. Two sets of adjustments are appropriate: those necessary to make one year comparable to another, and those necessary to adjust for exceptional factors in 2010.

The first set of adjustments reflect (1) inflation, since a dollar next year buys less than a dollar this year, and (2) population growth, since the benefits—and costs—of discretionary programs will be spread over a growing population.

The second set of adjustments reflect (1) the Census and (2) the Federal Housing Administration. In particular:

Census. The Constitution requires us to conduct a complete census of the population every 10 years, and 2010 is that year. The Census adds more than $4 billion in costs in 2010, but then those costs go away for another decade. A decade ago, Congress declared the 2000 census an "emergency," outside of its regular budget, but we refuse to use that accounting gimmick.

Federal Housing Administration. The Federal Housing Administration (FHA) guarantees mortgages for moderate-income people who make a sufficient down-payment and pay fees to the FHA. The previous administration estimated that the fees would cover the risk of default and so showed the program to be costless. Over the last few years, however, the program has been anything but costless; the Congressional Budget Office recently estimated those loans of the last few years would rack up $15 billion in losses. Unlike the previous administration, we are reflecting the true costs of this program on the Budget’s discretionary ledger, where it belongs. Even though it is likely that the program costs no more this year than last year, the prior administration was able to hide—due to an obscure scorekeeping rule—FHA costs in the mandatory portion of the budget and show no discretionary costs for this program.

With these adjustments, the funding increase in the President’s budget amounts to 3.2 percent.

Fair and Square: NDD Spending to Historic Lows

2009-03-13T13:07:00Z

Peter Orszag, Director

As I’ve blogged about before, the President’s Budget brings non-defense discretionary spending (NDD) down to its lowest level as share of GDP since 1962. This is accomplished by finding places to cut, eliminating redundancies, and wringing efficiencies out of government functions.

Recently, some have charged that we’re playing games with this NDD statistic – that we achieve these historical lows largely because we have proposed to convert the Pell grant program for college students from a "discretionary" program to a "mandatory" one, and thereby exclude it from NDD. These critics claim we are comparing historical NDD levels with Pell to our proposed NDD spending without Pell. And that would indeed be an unfair comparison if that’s what we were doing. But it’s not.

The Budget does propose to make Pell a mandatory program – because that would put the Pell program on firmer financial footing and thereby help encourage more students to aspire to college. (My reading of the evidence is that clarity and simplicity surrounding financial assistance can be just as important in boosting enrollment – if not more so – than the amount of such assistance.)

In undertaking our analysis of NDD spending, though, we adjusted the historical Pell numbers so that we were comparing "apples to apples." For purposes of historical comparison, we treated Pell as if it had always been a mandatory program. In other words, we removed expenditures on Pell for all prior years from our computation of historical NDD numbers so that they did not appear artificially inflated as compared to our Budget’s NDD numbers.

The bottom line is: The President’s Budget holds NDD spending to historic lows fair and square.

The Fiscal Impact of Winding Down a War

2009-03-06T20:47:00Z

Peter Orszag, Director

The President is committed to responsibly winding the war down. I don’t do foreign policy, but I can tell you this: ending wars saves money – and so the Administration’s budget includes savings from ramping down overseas military operations over time.

Yet critics are claiming that, in calculating the amount saved by ramping down operations in Iraq and Afghanistan, the Administration is wrong to compare its proposed funding levels to the level in 2008—the last year in which overseas operations were fully funded. Such criticisms are inconsistent not only with common sense but also established practices of budget accounting (and even what the critics themselves have said in the past).

The last time the United States began to ramp down from a prolonged, expensive military engagement, President George H.W. Bush was in office. With the Cold War having just been won, President Bush, for the 1991 budget, proposed a deficit reduction package that included substantial reductions in defense funding.

President Bush’s budget at the time reflected exactly the same budgetary treatment from ending the war that ours does. The baseline (that is, the deficit path before the President’s policies) reflected the high levels of defense spending precipitated by the Cold War, which had just ended at that point. Since President Bush proposed constraining defense spending over time to reflect the end of the Cold War, budgeteers credited the Administration with savings – just as the savings from winding down the war are credited under our budget. The scored savings, reflected in President Bush’s 1991 budget, are shown in the table below.

More importantly, what happened? The savings projected in President Bush’s 1991 Budget were achieved—and more. By 1995, the defense ramp-down started by President Bush and continued by President Clinton had achieved more than double the savings assumed by President Bush’s 1991 budget.

The bottom line: A ramp down in military operations produced savings then, and can produce real savings now.

President George H.W. Bush's FY 1991 Budget
(Percent of GDP)

	1991	1992	1993	1994	1995
Defense Baseline	5.2%	5.1%	5.0%	5.0%	4.9%
Defense Policy	5.1%	5.0%	4.7%	4.6%	4.4%
Defense Savings	-0.1%	-0.1%	-0.2%	-0.4%	-0.5%

Actual defense spending	5.4%	4.8%	4.4%	4.1%	3.7%

Sources: Congressional Budget Office Reestimate of the President’s FY 1991 Budget for the baseline and proposed policy. For actual defense spending, OMB historical tables.

Notes on the Budget

2009-03-03T16:29:00Z

Peter Orszag, Director

I am testifying (pdf) today before the House Budget Committee and wanted to share my notes on the budget.

Deficit $2 trillion higher for this year and next because of crisis we inherited.

The economic crisis we’ve inherited raises the deficit by roughly $2 trillion (for this year and next year combined). The crisis raises the deficit by:

Adding more than $600 billion of deficit spending ($300 billion a year) because a weak economy reduces revenue and increases spending on automatic stabilizers (like unemployment insurance)
Requiring $650 billion or more to stabilize financial markets (including placeholder):
- $171 billion for stock purchases in Fannie Mae and Freddie Mac
- $247 billion in federal costs for TARP
- $250 billion placeholder in case additional actions are necessary
Creating the need for the $787 billion Recovery Act to jumpstart the economy

Deficit would be another $2 trillion higher over the next 10 years without our policies – and we wouldn’t have cleaner energy, better education, or more efficient health care

The deficit reduction comes from:

Responsibly redeploying our military forces engaged in overseas contingency operations, as well as reforms that would allow us to get more for the money spent on defending the nation
Returning fairness to the tax system by closing tax loopholes, eliminating subsidies for special interests, and returning to the pre-2001 tax rates for high-income families making more than $250,000 per year (over next ten years, these revenue enhancements would reduce deficits by roughly $1 trillion)
Making government more efficient – for example, by eliminating unwarranted subsidies to middlemen on educational loans and reducing erroneous payments (these two steps would reduce deficits by almost $100 billion over next ten years)

Over the long term, health care is the key to our fiscal future – and the Budget proposes a $634 billion reserve fund to begin the process of reducing costs and improving quality.

The budget is fiscally responsible and not "big spending"

The Budget represents a major break from recent practice because it pays for new initiatives (e.g., in health care and energy) rather than enacting expensive new programs (such as the prescription drug benefit) without paying for them.

Furthermore, when critics speak of "government spending," they often mean non-defense discretionary (NDD) spending—the annual appropriations outside defense.

The average level of NDD spending between 1969 and 2008 was 3.8 percent of GDP.
In contrast, the President’s Budget proposes a gradual reduction in NDD spending as a share of the economy. Such spending averages 3.6 percent of GDP from 2010 to 2019 and declines to 3.1 percent by the end of the budget window – the lowest since the data began in 1962.

Economic forecasts and the Budget: Consistency with CBO

2009-02-28T20:19:00Z

Peter Orszag, Director

During last Thursday’s briefing on the President’s FY 2010 Budget, CEA Chair Christina Romer was asked many questions about the economic forecast underlying the Budget – and since then some news reports have highlighted differences between the Administration’s forecast and the Congressional Budget Office (CBO) forecast.

The problem with this comparison is that our forecast includes the effects of the American Recovery and Reinvestment Act, which has now been signed into law. The CBO forecast, by contrast, was published in January and did not take into account the effects of the Recovery Act.

To put the forecasts on an "apples-to-apples" basis, one can take the CBO forecast and add in the effects from CBO’s macroeconomic analysis of the Recovery Act—which included both a "high" and "low" estimate for the projected effect of the act. (See http://www.cbo.gov/ftpdocs/99xx/doc9987/Gregg_Year-by-Year_Stimulus.pdf.)
The results show that the Administration’s GDP forecast is entirely consistent with CBO’s forecast (and indeed right in the middle of CBO’s "high" and "low" estimates) once the effects of the Recovery Act are included. The table below presents the GDP projections on this "apples-to-apples" basis.

Projected Real GDP Levels
(Calendar Years, in 2000 dollars)

	2009	2010
CBO with "High" Effect of Recovery Act*	11,624	11,983
CBO with "Low" Effect of Recovery Act*	11,487	11,720
Administration Forecast	11,527	11,893

*Estimates based on published CBO projections
Corrected, 3/2/09

Since the time when both the Administration and the CBO forecasts were completed, incoming data suggest that the economy was even weaker at the end of last year than previously understood – underscoring the magnitude of the economic crisis inherited by the Administration and the need for the Recovery Act enacted earlier this month.

The Budget and Charitable Donations

2009-02-28T00:18:00Z

Peter Orszag, Director

Is our budget proposal uncharitable?

Over the past 24 hours since we debuted the President’s FY 2010 Budget, some non-profits have argued that the Administration’s plan to limit the amount that high-income families (those with income of more than a quarter million dollars a year) can deduct from their taxes for charitable contributions will hurt these organizations – and do so at a time when these organizations’ resources are stretched because of the recession we inherited.

First, the proposed tax change would not be imposed during a recession (see my previous post on that topic). Instead, it would begin in 2011 – at which point we expect the economy to be recovering.

Second, the money raised from the limits on itemized deductions would be used as part of the historic $634 billion reserve fund to fund health care reform. Reforming health care is essential to the long-term fiscal health of the country. Indeed, bending the curve on health costs is the single most important thing we can do to get our country back on a sustainable long-term fiscal path.

Third, there’s a question of fairness. Non-profits play a critical role in our society (indeed, I have worked at several of them in the past). But let’s look at how the tax code treats two different contributors to a non-profit. If you’re a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction – more than twice the break as the teacher.

This proposal walks that difference back some of the way – it would limit the tax benefit for Buffet or Gates to $280. In other words, we are not eliminating the deduction – just reducing it to 28 percent (or $280 on the hypothetical $1,000 contribution) for the 5 percent of families at the very top of the income distribution. That is the same tax benefit that they would have enjoyed at the end of the Reagan Administration.

Will this hurt charities?

The evidence suggests that many factors affect charitable contributions, including the desire to help the charity and overall economic conditions. (The most recent example with changing the tax code illustrates that point. Between 2002 and 2003, the top income tax deduction for charitable contributions was reduced from 38.6 percent to 35 percent – and yet individual charitable contributions rose, presumably because other factors were a more important influence on giving than the change in the income tax.) Furthermore, about 75 percent of overall contributions would not even be affected by the proposed income tax change – because the contributions come from individuals who would not be affected or from corporations or foundations not subject to the individual income tax. Finally, even to the extent that charitable contributions are affected by tax considerations, the budget contains other proposed changes (including retaining an estate tax) which will create stronger incentives for giving. Above all, though, the best way to boost charitable giving is to jumpstart the economy and raise incomes – and the purpose of the Recovery Act enacted earlier this month was to do precisely that.

In other news, I will be appearing Sunday on ABC’s "This Week with George Stephanopoulos." So please check out the show on Sunday morning.

Clearing up a misconception: “tax hikes during a recession?”

2009-02-27T00:29:00Z

Peter Orszag, Director

One of the questions I received throughout the day today, as we released the Fiscal Year 2010 budget, is why we are proposing to raise taxes on high-income taxpayers during a recession. And the answer is simple: we’re not.

First, the Recovery Act that was enacted earlier this month included $288 billion in tax reductions, as part of an overall effort to bolster the economy and help to fill in the "GDP gap" (the gap between how much the economy could produce and how much it is current producing). During a recession, we’re cutting taxes.

Second, as the economy recovers, we will need to begin bringing down the budget deficit to avoid a fiscal crisis in the future. So as we come out of the recession, and consistent with the President’s campaign proposals, the Budget combines spending reductions and revenue increases – with the revenue increases applying to high-income taxpayers (those with incomes of $250,000 or more) and corporations. The roughly $2 trillion in deficit reduction that the Budget contains for the next decade is split evenly between spending reductions (of roughly $1 trillion) and revenue increases (of roughly $1 trillion).

Let’s focus specifically on the revenue increases for high-income taxpayers. The Budget proposes that the tax cuts currently enjoyed by those with incomes above $250,000 be allowed to expire at the beginning of 2011, at which point the economy should have recovered from the current downturn. Again, the revenue increases for those with incomes of $250,000 or more a year would become effective January 1, 2011 – and not before.*

Finally, even after the economy recovers, the Budget proposes making the Making Work Pay tax credit permanent – which would provide a tax cut for 95 percent of working families. And the Budget includes other tax cuts as well, such as expanding the Savers Credit.

The bottom line is that despite what some people are saying, no tax increases would take effect during the recession. And even after the recession ends, 95 percent of working families would continue to enjoy tax cuts.

*For those who want to see that in the numbers, take a look at Table S-6 (pdf) on page 123 in the budget overview we just released (pdf). The changes to the top marginal tax rates and other provisions affecting high-income taxpayers do not take effect until January 2011 – which is why there are little or no revenue effects until fiscal year 2011. (The small changes in revenue from capital gains and dividends in 2010 reflect modest assumed shifts in behavior in anticipation of the tax changes taking effect at the beginning of the following year.)

Discipline, Efficiency, Prosperity

2009-02-26T16:03:00Z

Peter Orszag, Director

Welcome to my first blog post at the Office of Management and Budget.

In this blog, I want to open up OMB even more to the public and share with you what we’re doing to address the many challenges that we face as a nation. I know that, for many people, blogs are the easiest way of receiving information – so this blog may prove to be useful even if it simply provides a convenient way of keeping up with information from OMB that is already available in other formats. President Obama is committed to ensuring a direct link between citizens and our federal government. Especially in light of our difficult economic times, I am committed to ensuring that OMB’s work is accessible. Although OMB is extensively discussed in the media and elsewhere, the blog will allow me to communicate and explain our work directly.

Today, we’re releasing the overview of the President’s Fiscal Year 2010 Budget.

The context: Twin trillion dollar deficits

We face a pair of trillion dollar deficits. The first trillion dollar deficit is the gap between how much the economy has the potential to produce and how much it is actually producing each year. We have factories, workers, tools, and supplies idle at the moment, not producing goods or services. This creates a "GDP gap" that amounts to roughly $1 trillion in 2009 (or nearly 7 percent of estimated potential output) and another $1 trillion in 2010. The American Recovery and Reinvestment Act, enacted earlier this month, was intended to start filling this hole and jumpstart the economy by increasing the short-term demand for goods and services. Boosting "aggregate demand" through increases in government spending or reductions in taxes – both of which spur economic growth in the short run – means running higher budget deficits for a period. That effect is desirable because it reflects the delivery of more demand to the economy.

As the economy recovers, however, the effect of deficits on the economy reverses. At that point, the key to economic growth switches from boosting demand for goods and services (so that existing capacity is fully used) to expanding that underlying capacity. Large budget deficits become harmful in this situation. That’s because they entail some combination of reduced funds available to finance domestic investment or an increase in borrowing from abroad to finance that domestic investment. Either way, budget deficits reduce future national income. Either the nation does not have as much productivity enhancing capital in the future (the capital needed to make our workers more productive), or we owe more to foreign creditors.

This brings me to the second trillion dollar deficit that the new Administration is inheriting—under current policies, we face fiscal deficits of almost $1 trillion a year on average over the coming decade. Over the ten-year budget window, from FY 2010 to FY 2019, aggregate deficits would total nearly $9.0 trillion and average almost 5 percent of GDP if past policies were continued. Over longer periods of time, the deficit would reach even higher shares of GDP primarily because of rising health care costs.

The Fiscal Year 2010 Budget

This Budget puts us back on a road toward economic and fiscal health by:

Being honest. If this Budget used the gimmicks employed in recent budgets, it would show a bottom line that would appear about $2.7 trillion better over ten years. For example, these other budgets didn’t include the likely cost of natural disasters or the cost of permanently continuing the temporary patch that prevents millions of Americans from paying the Alternative Minimum Tax. Using gimmicks may make good politics temporarily, but it doesn’t help move the nation forward.
Cutting the deficit in half by the end of the President’s first term. We inherited a deficit of $1.3 trillion or 9% of GDP in fiscal 2009. Even though we increase the 2009 deficit to give the economy a desperately needed jolt, over subsequent years we reduce the deficit by more than half by 2013, the end of the president’s first term: to $533 billion or 3.0% of GDP. As I mentioned above, we inherited a path of projected deficits adding up to $9 trillion over the next ten years – and our policy proposals will reduce those projected deficits by more than $2 trillion.
Reforming health care. At the President’s direction, we have begun the process of doing a line-by-line review of the Budget. One of the lines we’ve started with is among the most important to the budget and to many other aspects of our economy: health care.

As I have long said, health care is the key to our nation’s fiscal future – and there are substantial efficiency improvements that are possible to deliver better results at lower costs in the health system. In the Recovery Act and in this Budget, we begin to make the investments necessary to bring about these efficiencies over the long-term—such electronic health records and comparative effectiveness research—and also identify more immediate saving measures to slow the growth of Medicare and Medicaid spending. These savings are devoted to a health reserve fund, which will be available as we work through the legislative process on health care reform this year. This proposal is a starting point, not an ending point, for health reform as additional resources will be needed to improve and expand health care for all Americans.
Making key investments. The Budget also makes key investments in education, energy, and infrastructure. It invests in early childhood education;makes Pell Grants for college into a reliable source of support for students and indexes their value above the ordinary rate of inflation so as to better keep up with the rapidly rising cost of college tuition; and helps at-risk students complete college. The Budget also lays down a comprehensive approach to transform our energy supply and slow global climate change. And it makes infrastructure investments that will provide our nation a foundation for long-term economic growth.

I invite you to read in more detail about the President’s Budget, which can be found here.

You probably won’t agree with everything in the Budget. But at the very least, it’s honest, laying down a fair marker as to where we are now. And I sincerely believe that the first step in arriving at a plan to move forward is to reach agreement on the place from which we are starting.

This Budget is not an end-point. It is a beginning. I invite you to return to this blog to read more about our continued efforts to return prosperity to the economy, discipline to the federal budget, and efficiency to our government.