What is the Congressional Budget Office (CBO)?

By: Charlotte Hanby

The Congressional Budget Office (CBO) is an independent, nonpartisan agency that serves Congress by providing economic and budgetary analyses of proposed legislation. It estimates the financial impact of proposed bills and assigns them a budget score, which is used by lawmakers to determine how the bill will affect the federal budget over a typical 5-to-10-year period.

What does the CBO do?

While the CBO does not make policy recommendations, the agency plays an important role in shaping legislation through its budget scores. These scores are particularly influential in determining whether proposed bills comply with the Pay-As-You-Go (PAYGO) rule, which requires that new legislation does not increase the federal deficit unless offset by other savings.1 If the CBO assigns a high cost to a bill, it may be rejected or modified to meet PAYGO requirements. A notable example is President Clinton’s 1993 health reform proposal, which failed in part due to having an unfavorable budget score.

Congressional Budget Office vs Office of Management and Budget

The CBO is distinct from the Office of Management and Budget (OMB), which advises the Executive Branch on the federal budget. The CBO provides nonpartisan analyses to Congress, estimating the budget impact of proposed legislation, while the OMB assists the President in creating the annual federal budget proposal and ensures that legislative proposals align with the President’s agenda.

Congressional Budget Office Scores

A CBO budget score estimates the cost of a bill over 5 to 10 years, evaluating three key aspects2:

  • Mandatory Spending: Costs related to entitlement programs like Medicare and Medicaid.
  • Discretionary Spending: Annual expenditures set by Congress for various government programs.
  • Federal Revenues: Income from taxes and other sources.

The CBO compares the estimates for a bill’s financial impact against the CBO’s projected federal budget baseline to calculate the score, reflecting either cost savings or spending increases over the designated period. A positive CBO score indicates an increase in federal spending or a decrease in revenue, which could lead to a budget deficit. A negative score, on the other hand, suggests a decrease in the deficit.

Static vs Dynamic Scoring at the CBO

The CBO employs two primary methods for budget scoring: static scoring and dynamic scoring. Static scoring evaluates only the direct fiscal impact of a policy change, without accounting for broader secondary economic effects. Dynamic scoring, on the other hand, accounts for secondary macroeconomic impacts, such as behavioral changes or long-term cost savings.

To demonstrate the differences between static and dynamic scoring, let’s consider a simplified example of what CBO might consider when determining how much it would cost to waive cost sharing for the “Welcome to Medicare” wellness visit for new Part B enrollees. The CBO’s static scoring approach simply multiplied the cost per visit by the expected number of visits, without considering potential cost savings resulting from early detection. Dynamic scoring would incorporate the potential savings from preventive care, such as fewer hospitalizations and reduced chronic disease costs, leading to a more comprehensive estimate. Dynamic scoring may also account for the positive economic impact of improving the health of the Medicare population through preventive care.

CBO Scoring Comparison Example

Historically, the CBO has relied primarily on static scoring due to its cautious approach when estimating the fiscal impact of new programs.3 When there is insufficient historical data to predict long-term savings with confidence, the CBO often assumes zero savings. This conservative methodology was evident in the introduction of the Medicare Part D program, where the CBO overestimated costs by 40% due to an inability to fully anticipate market dynamics and beneficiary behavior, leading to policy adjustments such as the introduction of the donut hole—a cost-sharing gap that might have been avoided with a more flexible initial estimate.4

However, the CBO does engage in dynamic scoring when there is a strong body of evidence supporting potential indirect economic effects. For instance, between 2003 and 2012, when assessing legislation that affected patients’ access to prescription drugs (e.g., reducing copayments), the CBO did not factor in potential savings from improved medication adherence.5 In 2012, after reviewing extensive research demonstrating that better prescription drug adherence leads to lower total healthcare costs, the CBO revised its methodology to include these savings in future budget estimates. This shift underscores how the CBO adapts its scoring practices over time when robust data justifies a more dynamic approach. TheCBO has recognized the uncertainties in conducting budget scores and seeks input from stakeholders when researching the potential budgetary effect of a bill.6,7

Policy Considerations and CBO Scoring

The CBO’s budget score is one of the key determinants of a bill’s legislative success. Understanding the CBO’s scoring methodology allows industry leaders and policymakers to evaluate fiscal viability and refine legislative language. It also enables them to engage with the CBO to address potential misalignments in scoring practices.

At Magnolia Market Access (MMA), our team provides strategic support from healthcare policy development through legislative negotiations, ensuring that policies are both effective and financially viable. We help clients navigate the CBO scoring process by:

  • Developing predictive models to estimate potential CBO scores, allowing clients to assess the fiscal feasibility of proposed policies.
  • Creating educational materials and engaging directly with the CBO to provide industry-specific insights that may influence scoring methodology and ensure a more accurate assessment.
  • Conducting workshops and refining budget projections in collaboration with clients to identify strategic legislative language modifications that could improve the likelihood of a favorable CBO score.

Contact us today to learn how MMA can help you navigate the complexities of CBO scoring with market access strategy and support.

References:

  1. Congressional Budget Office. The Statutory Pay-As-You-Go Act and the Role of Congress. August 2020. Accessed March 1st, 2025: https://www.cbo.gov/publication/56506
  2. Congressional Budget Office. Introduction to the CBO. January 2025. Accessed March 1st, 2025: https://www.cbo.gov/system/files/2025-01/60869-Intro-to-CBO.pdf
  3. Congressional Budget Office. Federal Debt: A Primer. April 2023. Accessed March 1st, 2025: https://www.cbo.gov/publication/59084
  4. Gabel, J. et al. Does the CBO Underestimate Savings from Reform? The Commonwealth Fund. January 2010. Accessed March 1st, 2025: https://www.commonwealthfund.org/sites/default/files/documents/___media_files_publications_issue_brief_2010_1367_gabel_does_cbo_underestimate_savings_from_reform_ib.pdf
  5. Congressional Budget Office. Offsets from Implementation of the Affordable Care Act’s Provisions for Expanding Health Coverage. November 2012. Accessed March 1st, 2025: https://www.cbo.gov/sites/default/files/cbofiles/attachments/43741-MedicalOffsets-11-29-12.pdf
  6. Congressional Budget Office. The Budget and Economic Outlook: Key Sources of Uncertainty. February 2025. Accessed March 1st, 2025: https://www.cbo.gov/system/files/2025-02/60984-uncertainty.pdf
  7. Congressional Budget Office. Federal Debt: A Primer. April 2023. Accessed March 1st, 2025: https://www.cbo.gov/publication/59084