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CBO Projections Indicate Obamacare Will Raise Deficits by $131 Billion

Obamacare by from The Weekly Standard, October, 14, 2014

Analysis of Congressional Budget Office projections by the Senate Budget Committee finds that Obamacare will increase the deficit by more than $100 billion over the next decade.

The Congressional Budget Office (CBO) has not actually scored the deficit impact of Obamacare since the summer of 2012.  At that time, it estimated that Obamacare would reduce deficits by $109 billion over a decade.  But that was for the 2013-22 budgetary window.  Using growth rates derived from that estimate, Senate Budget Committee (SBC) staff found that this $109 billion budgetary surplus for 2013-22 would have become a $180 billion budgetary surplus for 2015-24, if nothing had changed in the interim.

However, much has changed.  Since the CBO last scored the deficit impact of Obamacare more than two years ago, Americans have witnessed the troubled rollout of the Obamacare exchanges, and President Obama has refused to enforce significant portions of the legislation (like the employer and individual mandates, at least as they pertain to some employers and some individuals).  Meanwhile, the CBO has made technical adjustments to its baseline projections for federal health spending, has updated its economic forecasts, and has scored the legislation’s effect on labor markets.  Therefore, the 2012 figure of $109 billion for 2013-22, extrapolated out to $180 billion for 2015-24, is no longer current.

The CBO divides Obamacare’s deficit impact into three areas, which it then adds together to produce its overall deficit tally.  The first is “net changes in the deficit from insurance coverage provisions.”  That’s the spending side of Obamacare (or at least its net spending on insurance coverage provisions).

The second is “net changes in the deficit from other provisions affecting direct spending.”  That’s the money that would have been used to fund Medicare (or, to a lesser extent, other federal health programs) but is now slated to be used to fund Obamacare instead.

The third is “net changes in the deficit from other provisions affecting revenues.”  That’s the taxes, fees, and penalties under Obamacare that don’t have much, if any, relation to insurance coverage provisions.  (The taxes that do relate to insurance coverage provisions — namely, the tax on “Cadillac plans” and the fines for those who violate the individual or employer mandates — are instead included in the first area.)

Of these three areas, the first — “net changes in the deficit from insurance coverage provisions” — is the only one that the CBO updated in its most recent scoring of Obamacare, released in April 2014.  Because of lower-than-expected enrollment in the Obamacare exchange, changes in health cost assumptions, and reduced penalties collected from individuals and employers due to the president’s selective enforcement of the law, the CBO reduced Obamacare’s “net changes in the deficit from insurance coverage provisions” significantly.  In 2012, it said this tally would be $1.171 trillion for 2013-22.  The SBC staff’s extrapolation, based on the CBO’s projected growth rates, found that this tally would have been $1.466 trillion for 2015-24 if nothing had changed.  In April 2014, the CBO said the tally would actually be $1.383 trillion, a reduction of $83 billion versus the straight extrapolation, resulting from lower enrollment, selective enforcement, and changes in health cost assumptions.  That’s on the spending side of Obamacare.

But the CBO hasn’t updated its scoring for the other two areas — the revenues Obamacare gets from Medicare, and those it gets from non-coverage-related taxes, fees, or penalties — in the past two years and two months.  The CBO therefore hasn’t incorporated the technical adjustments it has made to its baseline projections for federal health spending as they pertain to Medicare, its updated economic forecasts, or its scoring of Obamacare’s effects on labor markets.

The SBC staff, however, has now incorporated these CBO projections to provide updated tallies for the remaining two areas in order to determine Obamacare’s deficit impact.

For the second area — Medicare — the SBC staff notes “a series of technical and economic revisions made by CBO to its baseline projections for Medicare and Medicaid spending since its last cost estimate was produced in 2012.”  These “baseline changes reduce the amount of projected federal health care savings from the other provisions affecting direct spending in the legislation by a total of $132 billion over the 10-year period, from $979 billion under the CBO 2012 extrapolation to $847 billion based on the SBC staff calculation.”

In other words, Obamacare is now projected to get $132 billion less out of Medicare (and, to a lesser extent, other federal health programs) than it was expected to get as of the summer of 2012.

The third and final area — the “net changes in the deficit from other provisions affecting revenues” — is where Obamacare’s projected effect on labor markets comes into play.

The SBC report says,

“In the February 2014 baseline, CBO conducted its first comprehensive analysis of the labor market effects of the health care law.  [CBO] found that by 2024 the equivalent of 2.5 million full-time workers will exit the labor force as a result of the law.  CBO estimates the law will reduce the total number of hours worked by 1.5 to 2 percent during the FY 2017–2024 period and will reduce aggregate labor compensation by 1 percent over the same period.”

The SBC staff “assumed that like the reduction in aggregate labor compensation, taxable personal income will also be reduced by 1 percent and that this amount would be taxed at the average rate for the population as a percentage of taxable income (approximately 13.5 percent for income taxes and 8.5 percent for Medicare and Social Security taxes).”  Based on these assumptions, Obamacare is now projected to get $262 billion less in (non-coverage-related) revenue because of its detrimental effect on job growth, a notion that wasn’t registered in the CBO’s July 2012 scoring.

So, compared to the deficit surplus of $180 billion for 2015-24 that a straight extrapolation from the CBO’s 2012 scoring would yield, current projections now indicate that Obamacare’s decreased spending (in relation to prior expectations) will reduce deficits by another $83 billion (bringing the estimated surplus to $263 billion), but those projected surpluses will be more than offset by the projected $132 billion decrease in Medicare revenue and $262 billion decrease in tax revenue due to lower job growth.

In all, therefore, CBO projections indicate that Obamacare will increase deficit spending by $131 billion from 2015-24.  That’s a $311 billion swing from the extrapolated 2012 numbers, a $240 billion swing from the actual 2012 numbers, and a $255 billion swing from what we were told when Obamacare was passed.

Polling has consistently shown that Americans do not believe that Obamacare, with its roughly $2 trillion in new federal spending, would somehow reduce deficit spending.  To the contrary, they believe it would send deficits soaring.  Still, it’s good to know that even the CBO, which has been one of Obamacare’s few friends in this regard, now seems to think Obamacare would increase deficits by over $100 billion.

It seems relatively safe to say that Obamacare — which Democrats passed over unanimous Republican opposition with just three votes to spare in the House and without a single vote to spare in the Senate — wouldn’t have passed had it been scored as a deficit bill.  It likewise wouldn’t have passed if its 10-year price-tag had been doubled, if people had been told they couldn’t keep their insurance or their doctors, or if they’d been told Obamacare would provide taxpayer funding of abortion-on-demand.

Now that all of this is known, it’s no wonder that, with a conservative alternative in play, 60 percent of Americans want Obamacare to be repealed.  This just goes to show the wisdom of James Madison, writing in Federalist 63, who said that “the cool and deliberate sense of the community ought, in all governments, and actually will, in all free governments, ultimately prevail over the views of its rulers.”

 © 2014 Weekly Standard LLC. Reprinted with permission.