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CBO: Obamacare Unlikely to Reduce Spending on Health Care

Posted By Kathryn Nix On July 1, 2010 @ 5:00 pm In Obamacare | Comments Disabled

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Yesterday, the Congressional Budget Office released its annual long-term Budget Outlook [2], which provides a look at mandatory federal spending on health care after passage of the Patient Protection and Affordable Care Act.

One may have expected to see drastic changes after the passage of Obamacare.  After all, this legislation was supposed to reduce costs and overall health spending.  However, the CBO’s report highlights the unlikelihood that cost-containment strategies included in the new law will ever come to fruition.

In its projections, CBO looks at two scenarios.  The extended-baseline scenario assumes that current law will occur as written.  The second, more likely occurrence, is the alternative fiscal scenario, which makes realistic assumptions about the future behavior of lawmakers.  For example, the extended-baseline scenario assumes that a 21 percent reduction to physician payments under Medicare will actually occur.  But since its inception in 1997, these reductions have been suspended every year, known as the “doc fix”.  Just days ago, Congress suspended the payment reductions for another six months, and you can be sure they will suspend it again when it expires in the future.  The alternative fiscal scenario accounts for this.

The extended-baseline scenario shows that by 2035, federal health spending will rise from its current rate of 5.5 percent of gross domestic product (GDP) to 10 percent of GDP in 2035—assuming many of the health care overhaul’s unsustainable provisions actually occur.  The alternative fiscal scenario projects federal health spending to be 11 percent of GDP in 2035—the same that it would have been without Obamacare.  This takes into account the first and second decades of enactment, during which federal health spending is expected to be greater than it would have been under prior law, with an incremental dip in relation to spending under prior law in the third decade.

What accounts for the difference? The alternative fiscal scenario assumes that politically unpopular cost-containing measures will not occur.  These include cuts to Medicare and reductions in the value of subsidies created for low and middle-income Americans to buy insurance in the new exchanges.  CBO explains that, “It is unclear whether that lower rate of growth can be sustained and, if so, whether it will be accomplished through greater efficiencies in the delivery of health care or will instead reduce access to care or diminish the quality of care.”  Reality: look at the latter possibility.

And even if Medicare cuts do occur, they won’t be used to strengthen Medicare, as Obamacare proponents have claimed.  CBO writes that, “…the majority of the HI trust fund savings achieved under the legislation through 2019 will be used to pay for other spending and therefore will not enhance the government’s underlying ability to pay for future Medicare benefits.”

What this report ultimately comes down to is the fact that after increasing taxes, increasing spending, and extending the reach of the federal government into the lives of Americans, Obamacare will do little, if anything, to reduce America’ s health care costs.  CBO makes the point that, in spite of the new law, in the future, “making appropriate changes in financial incentives will probably be critical in developing successful policies to restrain spending growth.  In many cases, the current health care system does not provide incentives for doctors, hospitals, and other providers of health care—or their patients—to control costs.”  This actuality was highlighted by Heritage research [3] before Obamacare passed.

To truly reform the health care system and reduce growth in spending, reform should result in a system where patients and doctors are encouraged to seek out the best value in care.  To learn about such a system, click here [4].


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/07/01/cbo-obamacare-unlikely-to-reduce-spending-on-health-care/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/2009/09/obamajointsesh090911.jpg

[2] annual long-term Budget Outlook: http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

[3] highlighted by Heritage research: http://www.heritage.org/Research/Reports/2010/02/Bending-the-Curve-What-Really-Drives-Health-Care-Spending

[4] click here: http://thf_media.s3.amazonaws.com/2008/pdf/bg2128.pdf

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