False Claims on Obamacare Savings

Published May 31, 2016

The Obama administration continues to insist the new health care law will reduce the federal budget deficit by $100 billion over ten years and ten times that amount in the second decade of implementation. They cite the Congressional Budget Office’s (CBO) cost estimate to back their claims.

CBO says the health legislation as written would reduce the federal budget deficit by $124 billion over ten years. But that’s not the whole story about Obamacare’s budgetary implications—not by a long shot.

Medicare Actuary Found Flaws

For starters, CBO is not the only game in town. In the executive branch, the chief actuary of Medicare is supposed to provide the official health-care cost projections for the administration. His cost estimate for the new health law differs in important ways from the one provided by CBO and calls into question every major contention the administration has advanced about the bill.

The president says the legislation will slow the increase in costs; the actuary says it won’t. The president says people will get to keep their job-based plans if they want to; the actuary says 14 million people will lose their employer coverage, many of whom would certainly rather keep it than switch to an untested program. The president says the new law will improve the budget outlook; don’t bet on it, says the chief actuary,.

In addition, it’s not the chief actuary’s assignment to provide estimates of non-Medicare-related tax provisions, so his cost projections for Obamacare do not capture all the needed budget data to estimate the full impact on the budget deficit. Using the Joint Tax Committee’s estimates for the tax provisions missing from the chief actuary’s report, we find $50 billion of deficit reduction alleged in the CBO report is wiped out.

And that’s before the other gimmicks, double counting, and hidden costs are exposed and removed from the accounting, too.

Costly Doc Fix

The budget put together by House and Senate Democratic leaders includes a three-year Medicare “doc fix” which will effectively undo the scheduled 21 percent cut in Medicare physician fees set to go into effect in June. CBO says this version of the “doc fix” would add $65 billion to the budget deficit over ten years.

But if the Obama administration gets its way, this three-year physician-fee fix will eventually get extended again, and also without offsets. Over a full ten-year period, an unfinanced “doc fix” would add as much as $400 billion to the budget deficit.

The truth is the president and his allies in Congress worked overtime to pull together every Medicare cut they could find—nearly $500 billion in all over ten years—to “pay” for the massive entitlement expansion they so coveted. They could have used those cuts to pay for the doc fix if they had wanted to, as well as for a slightly less expansive health program. But that’s not what they did. That wasn’t their priority.

They chose instead to break their agenda into multiple bills and “pay for” the massive health entitlement on paper. But it doesn’t matter to taxpayers if Obama and the congressional Democrats enact their agenda in one, two, or ten pieces of legislation. The total cost is still the same.

Thus all the supposed deficit reduction now claimed for the health-care law is more than wiped out by the Democrats’ insistent march to borrow and spend for Medicare physician fees.

Gaming the Process

The games didn’t end there. CBO’s cost estimate assumes $70 billion in deficit reduction from the so-called “CLASS Act.” This is the new voluntary long-term-care insurance program that hitched a ride on Obamacare because it too created the illusion of deficit reduction.

People who sign up for this insurance must pay premiums for at least five years before they are eligible to draw benefits. By definition, then, at start-up and for several years thereafter, there will be a surplus in the program as new entrants pay premiums and very few people draw benefits.

That’s the source of the $70 billion “savings.” But the premiums collected in the program’s early years will be needed very soon to pay actual claims.

In addition, the new insurance program is so poorly designed it too will need a federal bailout. Thus this manipulation is far worse than a benign bit of sleight of hand. Obama and the congressional Democrats have created a budgetary monster while using misleading estimates to claim a budgetary virtue.

Big Deficit Lie

There is even more deception in the deficit savings claims. CBO’s cost projections don’t reflect the administrative costs required to micromanage the health system from the Department of Health and Human Services. In addition, the number of employers looking to dump their workers into subsidized insurance is almost certainly going to be much higher than either CBO or the chief actuary now projects. And the price inflation from the added demand of the newly entitled isn’t factored into any of the official cost projections.

We’ve seen this movie before. When the government creates a new entitlement, politicians lowball the costs to get the law passed, and then they blame someone else when program costs soar. Witness Massachusetts.

Most Americans are sensible enough to know already that’s what can be expected next with Obamacare.

James Capretta ([email protected]) is a fellow at the Ethics and Public Policy Center in Washington, DC. This column is adapted from his blog, http://www.thenewatlantis.com/blog/diagnosis. Reprinted with permission.