The Corner

The Wrong Argument in Favor of Obamacare

Now that the elections are over and that the House has changed hands, much of the debate will focus on whether or not we should repeal Obamacare and what to replace it with. As such, it is not terribly surprising to read a piece in the New York Times by Peter Orszag, the former OMB director, arguing that we must keep health-care reform in place. Why? Because Obamacare saves money, remember? He writes:

Sure, the health care law is not perfect, but it would cut the nation’s long-term fiscal imbalance by a quarter and reduce the projected deficit within Medicare by three-quarters. That may seem fanciful, given how distorted the public discussion has become. But that’s what the projections show, as long as Congress sticks to its guns and the Obama administration does a good job carrying out the provisions of the law.

In my recent Reason article, however, I show that Orszag’s article amounts to little more than wishful thinking. Using Congressional Budget Office (CBO) data, the chart below shows that the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 have left the cost curve of federal health care spending virtually unchanged over the next 25 years. See the chart below. It doesn’t scream savings to me.

My article is here. I find this chart actually quite stunning. What’s more, Reason magazine’s Peter Suderman has a really good post that ultimately makes the case that this chart is likely to look worse in reality and that we won’t even get the next ten-year projected “savings.”

Orszag may want the Times’ readers to believe that the CBO’s official numbers are the only reasonable story, but back in March, former CBO director Douglas Holtz-Eakin, writing on, yes, The New York Times op-ed page, laid out a host of reasons to be skeptical of the official score. According to Holtz-Eakin, a more realistic estimate is that the law will result in a more than $550 billion increase in the deficit.

Even current CBO director Douglas Elmendorf—the same person responsible for the scores that Orszag is relying on—has implicitly suggested that, at minimum, it’s worth considering the possibility that the health care bill won’t actually pare back Medicare spending. Over the summer, he released a long-term budget analysis. That analysis contained two scenarios: The baseline scenario follows current law to the letter, and the alternative fiscal scenario that assumes that certain policy changes that are built into current law—such as the proposed Medicare cuts—do not come into effect.

To conclude, I want to point to a paragraph in the Orszag article that reads like a criticism of Speaker Pelosi. He asks, “Why do so many people assume that the act does almost nothing to save money?” His answer is because the House bill didn’t save money.

One explanation is that people’s first impressions of health care reform were formed during the summer of 2009, when the debate was dominated by the House bill. In health care reform, there’s always an underlying tension between those who are more concerned about expanding coverage and those who are more concerned about containing costs and improving quality. The House bill tilted toward coverage; the Senate bill, toward cost-effectiveness and quality.

The House bill was legitimately criticized for not doing enough to reduce costs.

Read more here. Also, you can read Suderman’s writings on health care here and here. He is very much worth reading.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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