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Obamacare and the Deficit



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Over the past two years, Obamacare’s champions have often claimed that the new law would actually save the government money and reduce the deficit. Early on, they argued that it would do this in part by reducing health-care costs, but no one really makes that case anymore. Rather, they argue that Obamacare offers a version of today’s preferred liberal approach to deficit reduction: it increases taxes by even more than the immense amount by which it increases spending. That’s not exactly a recipe for fiscal responsibility or a means of addressing the underlying problem of costs, but on the face of it perhaps it should allow them to claim that Obamacare reduces the deficit.

 

Except that it doesn’t. From the very beginning, critics of Obamacare have pointed out that, even if you accept all of the implausible claims of cost savings in the law, the CBO score of the legislation double-counted the effects of the enormous Medicare cuts scheduled to occur in the next few years. Even if those cuts were to actually happen—a very big “if” given that they are supposed to be undertaken without any actual reform of the system, just using more of the price controls that have failed for decades—the amount of the cuts can’t be counted as both improving the fiscal sustainability of the Medicare trust funds and reducing the deficit at the same time. Yet CBO counts it precisely as doing both. The Medicare actuary (who works for Barack Obama) has been very clear on this point, writing in 2010 that the Medicare cuts in the law were unlikely to actually occur but that even if they did: “In practice, the improved [Medicare trust fund] financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.” CBO has acknowledged that, although it is bound by those accounting conventions and so must double count the proposed cuts, it is true that doing so does not offer a true picture of the law’s effect on the deficit.

 

Working out exactly what the effect of avoiding this double counting would be, and more broadly what the actual effect of Obamacare on the deficit is likely to be, is no easy feat. It basically requires re-scoring the law using the data available to CBO, but avoiding the misleading conventions forced upon the agency. In an important new paper out today from the Mercatus Center, Charles Blahous has done just that.

 

Blahous was an economic advisor in the Bush White House and is now a trustee of both the Social Security and Medicare programs. His paper deserves to redefine the fiscal debate about Obamacare. Blahous doesn’t only address the double-counting problem but goes through the law’s various sections and scores their likely effects—in each case offering an optimistic scenario, a pessimistic scenario (though by no means a worst-case, and some of these are still a bit optimistic), and a middle scenario. Regarding the overall effect of the law on the deficit, his conclusion is clear:

Taken as a whole, the enactment of the ACA has substantially worsened a dire federal fiscal outlook. The ACA both 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.
Blahous’s paper is both an exceptionally lucid guided tour of what is actually in Obamacare and a bracing overview of its likely effects on federal finances.
 
Obamacare’s worsening of the deficit is hardly its worst feature, of course. If it is not repealed, the law will be an utter disaster for American health care. But the fiscal case is one of the arguments still made by Obamacare’s defenders, and Blahous offers a decisive refutation. It’s a long and somewhat technical paper, but it’s clear and accessible, and if you want to understand Obamacare you ought to read it.


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