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CBO's Estimates of Obamacare, Revisited

Posted By James Capretta On March 21, 2012 @ 2:45 pm In Featured,Obamacare | Comments Disabled

Some apologists for Obamacare are trying to tout [1] recent analyses from the Congressional Budget Office (CBO) as confirming once again that the health law will cut projected future budget deficits.

But CBO’s recent analyses—including updated projections of the costs of the new entitlement spending [2] in the so-called exchanges and some simulations on employer dumping scenarios [3]—basically say nothing that wasn’t already said when the agency issued its original cost estimates for the law in March 2010.

It is certainly true that CBO projected in 2010 and again this month that the new law would, at least on paper, reduce the federal government’s budget deficit modestly over its first two decades. But that assessment has always rested on a series of omissions, gimmicks, double-counting of savings, and implausible assumptions that also have not changed since the law was enacted in 2010. When the imaginary “savings” is stripped out of the accounting, Obamacare is exposed as the epic budget buster that it is. That, too, hasn’t changed since March 2010.

The problems start with some “pay-fors” that were doomed from the get-go. Just after enactment, the ridiculous paperwork provision that was going to require all employers to report even the smallest contractual transactions to the IRS caused such an uproar that it was repealed, with scores of Democrats joining in the fun of repeal just months after voting to impose the requirement on businesses. Then the Administration pulled the plug on the ill-begotten CLASS Act, the voluntary long-term care program that hitched a ride on Obamacare because CBO said it would reduce the deficit by $70 billion over a decade. Right there, more than $70 billion of the supposed 10-year deficit reduction of $123 billion from the original cost estimate is already gone.

Next up is double-counting. The law relied heavily on cuts to the Medicare program to pay for the massive entitlement expansions in the legislation. But a large part of the Medicare cuts (and payroll tax increases) is also supposed to pay for future benefits out of the Medicare Hospital Insurance trust fund. In other words, the savings from the cuts and taxes is spent twice—once on Obamacare’s entitlements and then again to fill a hole in the trust fund so that future Medicare claims can be met. The end result is not deficit reduction, as Obamacare’s apologists claim, but a massive increase in deficit spending over the long term.

Then there are the scores of implausible assumptions. The Medicare cuts that are double-counted may not survive long anyway, because they are so indiscriminate and blunt that the chief actuary of the Medicare program has warned multiple times that they cannot be relied on. If they are implemented as written, they will cause severe access problems for seniors, as declining payment rates from Medicare will drive hospitals and other providers to stop taking elderly patients.

Further, even CBO admits that there is great uncertainty surrounding employer and worker responses to the massive entitlement promises in the law. According to CBO’s recent simulations on employer responses, a family of four with income at 200 percent of the poverty line in 2016 would get $11,300 more in government assistance for health care inside the exchanges than from employer-paid health care. That’s a huge amount of money for a family with $50,000 in annual income. And yet CBO’s original cost estimate showed very few of those people migrating form employer plans into the exchanges. In one of the scenarios CBO released last week, it estimates that the cost of the legislation would go up by $36 billion if just 20 percent of low-wage workers migrated into the exchanges from employer plans. But what if 40 percent, 60 percent, or 80 percent migrate? The costs of the legislation will balloon.

Finally, there are the omitted costs. CBO admits that a lot of the costs for administering Obamacare aren’t counted in the original cost estimate. There’s at least $5 billion to $10 billion in Health and Human Services (HHS) spending, and another $5 billion to $10 billion for the IRS. Just this year, HHS asked for an additional $850 million to pay for setting up a federal backup exchange in 2013. None of these costs are counted in the original cost estimate. Further, there’s the $300 billion in physician fees. The Administration scooped up every Medicare cut it could find to pay for Obamacare and then said it wanted to add new physician fee spending to the deficit without any offsets. But just because they tried to keep two sets of books doesn’t mean the deficit won’t go up. It will, as the combined effect of the “doc fix” and Obamacare is unquestionably an increase in the deficit.

Obamacare is the largest entitlement expansion in a generation. It will add tens of millions of Americans to government support programs, with trillions in new spending in coming years. The idea that this will somehow improve the long-term budget outlook has always struck commonsense Americans as a combination of wishful thinking and typical Washington misdirection. They are right.


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

URL to article: http://blog.heritage.org/2012/03/21/cbos-estimates-of-obamacare-revisited/

URLs in this post:

[1] trying to tout: http://www.washingtonpost.com/blogs/ezra-klein/post/cbo-health-reform-to-cut-deficit-by-50-billion-more-than-we-thought/2011/08/25/gIQAXgPSES_blog.html

[2] updated projections of the costs of the new entitlement spending: http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf

[3] some simulations on employer dumping scenarios: http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-15-ACA_and_Insurance.pdf

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