Obamacare's True Costs Coming to Light

Heritage Foundation

Remember how President Barack Obama promised that his health care plan would reduce the deficit and put us on a path towards fiscal responsibility? Remember how Congress kept gaming the system to come up with the Congressional Budget Office (CBO) score that could justify those claims? Well, now that Obamacare has become (hopefully only temporarily) the law of the land, the CBO is singing a slightly different tune. Last Friday CBO Director Doug Elmendorf wrote on his blog:

The central challenge is straightforward and stark: The rising costs of health care will put tremendous pressure on the federal budget during the next few decades and beyond.

In CBO's judgment, the health legislation enacted earlier this year does not substantially diminish that pressure. In fact, CBO estimated that the health legislation will increase the federal budgetary commitment to health care (which CBO defines as the sum of net federal outlays for health programs and tax preferences for health care) by nearly $400 billion during the 2010-2019 period. Looking further ahead, CBO estimated that the legislation would reduce the federal budgetary commitment to health care in the following decade—if the provisions of the legislation remain unchanged throughout that entire period.

And there is ample evidence that the CBO may be underestimating Obamacare's true costs. Ethics and Public Policy Center Fellow James Capretta details:


Omission of the Medicare "Doc Fix." The Obama Administration and leaders in Congress chose to use all of the tax hikes and spending cuts they could find to create another new entitlement instead of paying for a fix for Medicare physician fees (the so-called “doc fix�). Under current law, those fees are set to get cut by 21 percent in June. The Obama Administration wants to undo the cut permanently, but it does not provide any offsetting savings. The result will be a spending increase of between $250 billion and $400 billion over a decade. Passing an unfinanced “doc fix� wipes out all of the supposed savings from the new legislation and greatly adds to the burden on future taxpayers.

The CLASS Act Gimmick. The new health law creates a voluntary long-term care insurance program, called the Community Living Assistance Services and Supports (CLASS) Act. Those who sign up for it must pay premiums for five years before becoming eligible for benefit payments. Consequently, premiums paid by enrollees build a small surplus—about $70 billion over 10 years according to CBO—which the health law’s proponents claim as deficit reduction. But these premiums will be needed in short order to pay actual claims.

Medicare Cuts. CBO and the Chief Actuary for the Medicare program have both stated that Medicare spending cuts cannot be counted twice—to pay for a new entitlement expansion and to claim that Medicare’s financial outlook has improved. But that is exactly what the proponents of the new legislation do. If the Medicare cuts and tax hikes for the hospital trust fund (about $400 billion over 10 years, according to CBO) are used solely to improve the capacity of the government to pay future Medicare claims, then the health law becomes a massive exercise in deficit spending.

Estimates of Employees Dropped from Job-Based Coverage. The new insurance arrangements in the state-based exchanges will provide massive new subsidies to low- and moderate-wage households. For instance, at 200 percent FPL, the subsidy for a family of four will reach nearly $11,000 in 2014. But CBO estimates that only 3 million Americans will move from job-based insurance into the exchanges to take advantage of the subsidies, even though there are about 130 million Americans under age 65 with incomes between 100 and 400 percent FPL. Douglas Holtz-Eakin and Cameron Smith of the American Action Forum have estimated that as many as 35 million people will be moved out of job-based coverage and into subsidization. If that is the case, the 10-year cost of the coverage expansion provisions would jump by $400 billion more.

According to one recent estimate, Obamacare will add more than $500 billion to the deficit over the next 10 years and $1.5 trillion in the decade following. No wonder support for the repeal of Obamacare continues to grow.