The Corner

Re: No, Ezra Klein, Obamacare Will Not Reduce the Deficit

Kevin is right. How could the health-care bill reduce the national debt when it increases spending in the next ten years and leaves long-term federal spending on health care unchanged in the best-case scenario (and the best-case scenario won’t happen)? There are a lot of things in the health-care bill; but savings is not one of them. Using the Congressional Budget Office data, the chart below shows that the bill has left the cost curve of federal health-care spending virtually unchanged over the next 25 years.

The data for this chart comes from the June 2010 Long-Term Budget Outlook and the Cost Estimate for the Reconciliation of Act 2010. As we can see, the chart compares future projected federal spending on health care with and without the projected effects of the Affordable Care Act. In red, CBO’s projected federal health-care costs without the effects of the Affordable Care Act; in blue, CBO’s projected federal health care costs with the health-care legislation. The two lines closely follow one another, with currently legislated health-care spending (which includes the effects of the health-care legislation) dominating the baseline health-care spending (which does not).

The CBO finds that the effect of the health-care legislation has been to increase government spending by roughly $400 billion between 2010 and 2020. From 2020 to 2035, federal spending under the two projections are equal percentages of GDP. If the real cost-containment provisions kick in around 2036, these futuristic projections are simply not realistic.

Assuming the very unlikely scenario that every cut in the Affordable Care Act is enacted, the law contains provisions that have conflicting effects on net federal spending. On the one hand, it increases spending by increasing the federal commitment to Medicaid and increasing federal subsidies for private insurance; on the other hand, federal payments to Medicare and private insurance are legislated to decrease.

While the increases are a sure thing, the savings are unlikely to materialize. In 2010 alone, Congress has already headed off four scheduled payment drops — in January, March and April and December (I think). In fact, as the CBO noted, “Congress has kicked the can down the road on payment reductions yet again, putting off the reduction in payment rates until at least December 2010.” But even that didn’t happen.

The bottom line is that this law doesn’t reduce federal spending on health care under even the rosiest of scenarios (that is, projections that take seriously all its creators’ assumptions).

Here is a piece I wrote on the issue for Reason Online two months ago.

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

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