Soon after the U.S. Supreme Court upheld the bulk of Obamacare, the Congressional Budget Office came out with a new estimate for its cost. No surprise: As before, CBO said it would reduce, not raise, the federal deficit. This put a warm glow in the heart of every Democrat and Obamacare supporter.
Too bad it’s a fairy tale. With the election only weeks away, the point must be emphasized: This law is a fiscal calamity.
CBO said the court ruling reduces the 10-year cost of Obamacare by $84 billion because states won’t be required to expand coverage under Medicaid. But that doesn’t come close to solving the budget problem.
CBO is obligated to follow “scoring conventions” that, among other things, assume spending cuts in current law won’t be overridden by Congress when the time comes for some favored constituency to feel the pain. Example: the “doc fix,” in which Congress regularly keeps physicians and other providers from being whacked by scheduled cuts in Medicare fees.
In April, Charles Blahous, one of two public trustees for Medicare and Social Security, published a study offering a more realistic estimate of the law’s cost. Blahous found that over the next 10 years, Obamacare would balloon federal deficits by between $340 billion and $530 billion.
A big item is the double counting of reductions in Medicare spending. This is several hundred billion dollars yanked out of Medicare and shifted to Obamacare.
CBO saw that move as a fiscal gain. If not for that, Blahous wrote, Obamacare “would have been scored as worsening the federal fiscal outlook.”
Here’s the problem. The Medicare spending reductions extended the life of Medicare’s hospital trust fund. As Blahous explained, when you take a dollar from Medicare and use it to pay for something else, the trust fund’s financial position improves.
Medicare can’t spend a dime unless the trust fund has a positive balance. Lower Medicare spending today leaves more in the trust fund to be spent later.
But that money will also be spent on Obamacare. Each $1 in Medicare sent to Obamacare sets up $2 in overall federal spending. Obamacare “expands the spending authority of Medicare in ways not accounted for under the scoring conventions that show positive budgetary effects of the legislation,” Blahous wrote.
The biggest single expense will be the health care exchanges, estimated to cost nearly $780 billion over 10 years. Recipients will get both tax credits for premium costs and cost-sharing subsidies for out-of-pocket expenses.
This will create an incentive for companies to drop coverage and pay the required tax. CBO foresaw only a relatively minor shift from employer-sponsored policies to the subsidized exchanges, but it admits it has no clear idea how many people would be affected. Estimates by private consultants are much higher. If they’re right, costs would explode as more people migrate to the exchanges.
Obamacare supporters say new controls like the Independent Payment Advisory Board will help keep Medicare costs under control, but the problem here is similar to the doc fix. Congress will be pressured to override the panel’s recommendations.
Ditto for the tax on “Cadillac” health plans. Lawmakers will be lobbied to water down or wipe out the tax before it goes into effect in 2018.
More: Some supporters put great stock in “delivery-system reforms,” which include incentives for hospitals to boost quality and innovations such as “accountable care organizations.”
But the savings are close to trivial. Medicare’s chief actuary put them at about $2 billion, all derived from comparative-effectiveness research. The other delivery-system reforms would have a “negligible financial impact,” according to the actuary.
The coming Obamacare spending explosion is ironic because one of the main justifications for health care reform was fiscal discipline. The route to that goal, said then-Office of Management and Budget chief Peter Orszag, runs “directly through health care.”
Too bad the people who wrote this law lost their way.