Will Repeal of Obamacare Increase the Deficit?
Rescinding the federal law to overhaul the health-care system, the first objective of House Republicans who ascended to power this week, would ratchet up the federal deficit by about $230 billion over the next decade … , according to congressional budget analysts.
Does this make any sense? That is, can repeal of a program costing almost a trillion dollars (over ten years) actually improve the deficit?
Well, yes and no. Here’s the deal.
1. The CBO analysis to which the story refers provides an estimate of the budgetary impact of the entire health care bill, which consists of several new policies. Some of these create new expenditure, some reduce existing expenditure, and some raise revenue . Let’s break it down.
2. The new expenditure consists mainly of expanding Medicaid and subsidizing insurance purchased through exchanges: roughly $900 billion.
3. The reduced expenditure consists mainly of cuts in Medicare Advantage and in Medicare payments to doctors and other health care providers: roughly $500 billion.
4. The extra revenue consists mainly new taxes on insurers and manufacturers of health care equipment, along with additional taxes on high-income households: roughly $525 billion.
So, there’s no mystery: the bill creates $900 billion of new expenditure, cuts $500 billion of existing expenditure, and raises $525 billion in new taxes. The net effect is a reduction in the deficit of $125 billion over the first ten years. This is entirely because the expenditure cuts and tax increases are greater than the new expenditure, not because Obamacare does anything to “bend the cost curve.”
Now, the question is, are the estimates of expenditure and revenue likely to be accurate?
No way: the new expenditure will be far greater than estimated, while the reductions in existing expenditure and the extra revenue collected will be far smaller than estimated (see, for example, here). And these estimates have further problems I have skipped; see here.
So the claim that Obamacare generates a budgetary benefit is, in a limited, technical sense, correct. Yet in any meaningful sense it is utter nonsense. Everyone knows this; it is just convenient for many people to pretend otherwise.
Categories: My Blog
Stephen Manion
I love it when someone who is trying very hard to convince me of something closes with “Everyone knows this … ” Why bothered to convince us of what we all already know?
Phobos
I love it when someone doesn’t agree with a person’s conclusion, how they instead fault them on the style of one sentence with a baseless conclusion of their own. You sir, are a dope.
Frozone
Both a correct claim and utter nonsense. This blog is utter sophistry.
John
Left out the fact that the costs are backloaded just over the 10-year forecast line (imagine that!). And there is no certainty that Congress will ever enact the cuts to Medicare (think the “doc fix” that happens ever year to stave off supposed cuts in Medicare already “enacted”).
Jacquelyn
I would like to know the various financial impacts illegal immigration has had on our economy. If illegal immigration had not gone unchecked for the past 20 years, where would the USA be today, financially? Furthermore, how does the cumulative impact of 20 years of illegal immigration affect the future of America’s economy? How is this similar or different from the immigration problem in the UK? Thank you…
Mike
And let’s not forget the Doc Fix that was done in an entirely different bill to help make Obamacare look like it reduced the deficit. I believe that was $200 billion by itself.
Pat Williams
In this healthcare debate I’ve been waiting for someone to say that the healthcare bill would save money because the uninsured would not be going to the super expensive emergency room because they lack the money to pay a local doctor.
Hospitals have to charge the “insured” more to cover the costs of those who have no money but get treatment anyway.
The logic is the healthcare bill would “pay” the local doctor $50 for a sick visit instead of $1000 for the emergency room visit. It seems it could actually save money if hospitals are no longer have to “charge extra” for uninsured which could lower hospital costs.
Lower hospital costs could mean lower insurance costs.
It’s not so pie-in-the-sky either.
Many states already have a medicaid/private insurance model in place that works like I described above.
Many states understood that old medcaid programs paid for medical costs via hospital emergency rooms.
Many states cut medicaid costs by offering HMO-like plans to medicaid patients which directed them to go to less expensive local doctors instead of the emergency room.
Repealing Healthcare won’t really solve the problem – Hospitals charge too much – Insurance companies then charge too much.
Jacquelyn
Hospitals have to charge the “insured” more to cover the costs of those who have no money but get the treatment anyway. What percentage of those who have no money but get treatment anyway are relatively recent legal or illegal immigrants to this country? I am sure the stats are out there. I would like to know the numbers. Perhaps immigration should be addressed directly as an issue of financial seriousness.
Jack Davis
The argument that repealing the health care bill will cost money can be described in four words: left wing voodoo economics. No more convincing to me than the Laffer curve.
Florentina Arano
What are the best schools for a creative writing major?
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