CHARTS: Why Obamacare Adds Hundreds Of Billions To The Deficit

Barack Obama Documentary

Photo: BarackObamadotcom

The Mercatus centre’s Charles Blahous has just launched a frontal assault on Obamacare, by releasing a study showing that the health-care reform is very unlikely to reduce government spending on health-care. More likely it is going to blow an enormous hole in the budget, and increase deficits by over $500 billion dollars. 

His basic argument boils down to a few points. 

1) The original budget estimates were too optimistic. 

2) Historically Congress tends to get rid of the cost-cutting and increase the spending in these kinds of bills, and they already are doing that. 

This is the current glide path for federal government spending and federal tax revenue. Already deficits increase.

The previous slide projected the health care law would add $401 billion to total federal outlays through 2019; but CBO's updated 2011 analysis found that it would add $604 billion to total outlays through 2021.

One of the major budget-savers in Obamacare was supposed to be the Community Living Assistance Services and Support program (CLASS). But, that program was found to be so fiscally unsound it is being chucked altogether. Out of Obamacare's supposed $210 billion in savings, CLASS amounted to $86 billion. That is just wiped out now.

The CBO's current estimate (minus CLASS) is shown here. But this scenario is subject to a lot of uncertainty, mainly the number of people who participate directly in the federally funded insurance programs.

Here are three scenarios for how spending on the government subsidized health-care exchanges in Obamacare would grow over the next decade. The number of people forced into the exchanges could continue to grow in the pessimistic scenario, and the cost-cutting in the exchanges is likely to be stripped out if Congress does what it normally does.

One of the other cost-saving measures in Obamacare is the Independent Payment Advisory Board, which would have authority to reduce reimbursements for medical services paid for by Medicare in order to achieve cost-cuts. In the optimistic scenario, they do whatever is necessary to hit the savings targets. In the pessimistic scenario they are pressured or overridden by Congress to not provide those savings.

Obamacare imposes a tax on 'Cadillac' health insurance plans (the ones your employer might get you) in order to offset other Obamacare expenses and discourage the kind of waste and over consumption that happens when people have a full ride. But these taxes are already massively unpopular and delayed until 2018. The pessimistic scenario assumes they'll be kept at a % of GDP growth only.

When you start pulling together al the pessimistic scenarios (cost-savings are cut to avoid pain, spending increases to match health-care inflation) suddenly Obamacare goes from a budget saver to a budget buster.

Here the toplines are what would happen if every estimate went exactly as the Obama administration predicts. The bottom lines are what will potentially happen once Congress begins to manipulate the law to make it more palatable (lower taxes, increase Medicare reimbursements, etc).

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