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New Study Shows Obamacare’s Huge Additions to Federal Deficit

Posted By Kathryn Nix On April 10, 2012 @ 4:39 pm In Obamacare | Comments Disabled

A study released today by Charles Blahous [1], one of two public trustees of Medicare and Social Security, once again shows that Obamacare increases federal deficits [2] and significantly worsens the nation’s fiscal outlook. According to the study’s most optimistic scenario, the health law will increase federal spending by $1.16 trillion and increase the deficit by $346 billion between 2012 and 2021. The worst case—and most realistic—scenario: an increase in spending of $1.24 trillion and $527 billion in new deficits.

Obamacare’s failure to reverse the federal government’s abysmal financial situation is not to be taken lightly. The legislation’s primary goal was to expand health coverage. However, Blahous points out that not only were the law’s fiscal benefits “consistently presented as a primary motivation for enacting legislation,” but it was also widely believed that health care reform was inextricably tied to reversing the fiscal outlook, since a significant portion of the nation’s long-term deficits are caused by federal spending on health care.

Blahous makes clear [1]: “Because of the federal government’s untenable long-term fiscal outlook under current law, and because of the political difficulty (and thus infrequency) of comprehensive health care reform, it is essential that such reform unambiguously and significantly improve the government’s fiscal outlook.”

Legislation can, of course, succeed at deficit reduction but perpetuate fiscal irresponsibility—by increasing spending but raising taxes or cutting in other areas by a comparable amount. This scenario, which maintains the trajectory of unaffordable federal health spending, is exactly what will come to fruition under Obamacare. And it is unacceptable.

One of the most significant, and yet most misunderstood, ways in which Obamacare will add to deficits is by double-counting Medicare savings as paying for new health entitlements and extending the solvency of the program itself. This is impossible. Congress can’t spend the dollars twice, and in fact, by law it must apply them to extend Medicare’s solvency or else allow automatic benefit reductions when the trust fund runs dry.

Confusion comes from the Congressional Budget Office (CBO) analysis showing Obamacare would reduce the deficit—“when a specific scoring convention was applied,” Blahous explains. The problem is that the CBO’s and the Medicare Actuary’s scorekeeping methods imply that current benefit levels for both Medicare and Social Security will be sustained, even when their trust funds are empty. This serves a valid purpose, making clear the level of savings needed to sustain the programs and encouraging lawmakers to pursue adequate solutions. But it also creates the illusion that current benefits in both programs can be perpetuated without those savings, which is false.

According to Blahous [1]:

In this context, the Medicare savings in the ACA [Obamacare] are not “found money” for the federal government, free to be spent on a new health entitlement without worsening the deficit. This is why, when comparing the ACA not to a common scoring convention but to the actual change in law, a worsening of both federal costs and of federal deficits results.

Without Obamacare, the Medicare Part A Trust Fund would be exhausted by 2016. Any savings in Medicare thereafter would first and foremost maintain seniors’ current benefits. This means that of the $850 billion in Medicare savings expected from Obamacare through 2021, only $290 billion are actually available to offset new spending. And this assumes the cuts go fully into effect; since they’re mainly the result of slashing provider payment rates, this is unlikely.

Taking out double-counted Medicare savings alone puts Obamcare’s impact on federal deficits in the red. But as Blahous writes, “This worsened fiscal situation is exacerbated by the substantial financing risks associated with several of the ACA’s specific provisions.” These include:

  • The now-assured failure of the CLASS program, which created the illusion of deficit reduction by collecting premiums in its first five years without paying out any benefits;
  • The likelihood that participation in subsidized coverage available in the new exchanges will be higher than originally estimated, and that future politicians will face pressure to remove the cost constraints built into the expensive program; and
  • The lack of political will to actually implement the new excise tax on “Cadillac plans,” which would otherwise be a significant source of revenue.

The list goes on [3]. Blahous concludes that Obamacare:

[B]oth increases a federal commitment to health care spending that was already unsustainable under prior law and would exacerbate projected federal deficits relative to prior law. This is an unambiguous conclusion, as it would result regardless of the degree of future success attained in upholding various cost-saving provisions now embedded in the law.

Obamacare’s complete and utter failure to improve the federal fiscal outlook is just one of many, many reasons [4] Congress should repeal it.


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

URL to article: http://blog.heritage.org/2012/04/10/new-study-shows-obamacares-huge-additions-to-federal-deficit/

URLs in this post:

[1] A study released today by Charles Blahous: http://mercatus.org/sites/default/files/publication/The-Fiscal-Consequences-of-the-Affordable-Care-Act_1.pdf

[2] federal deficits: http://www.heritage.org/federalbudget/debt-and-deficits

[3] The list goes on: http://www.heritage.org/research/reports/2011/01/obamacare-and-the-budget-playing-games-with-numbers

[4] many, many reasons: http://www.heritage.org/research/projects/the-case-against-obamacare

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