Diary

The CBO Has Not Actually Scored Obamacare's Deficit Impact Since 2012

Hats off to The Weekly Standard for delving into the question of Obamacare costs. The Senate Budget Committee (SBC) took the time to analyze the Congressional Budget Office (CBO) projections related to Obamacare and this is what they found:

**”The Congressional Budget Office (CBO) has not actually scored the deficit impact of Obamacare since the summer of 2012″.

Why is this the case? Is it to leave rosier information available to the public so Obamacare backers can continue to peddle positive talking points and obfuscate the financial impact of this legislation? The last scoring was done using the 2013-2022 ten year budget window and the estimate was that Obamacare would reduce the deficit by $109 billion at that time. The SBC took the same growth rate used to tabulate that projection and applied it to a new 10 year window and found that the surplus would have grown to $180 billion for 2015-2014… ”if nothing had changed in the interim” . And that’s the key. So much has changed in so little time that the surplus will now be a deficit.

What has changed since the summer of 2012? Between the fumbled rollout of the Obamacare exchanges and the fact that Obama declined to enforce the employer and individual mandates on schedule per the law, the CBO projections on deficit impact are no longer relevant.

Interestingly, the CBO has found the time to make “technical adjustments to its baseline projections for federal health spending has updated its economic forecasts, and has scored the legislation’s effect on labor markets.” But not the deficit.

How does the CBO determine deficit impact? There are three areas that comprise this figure, which, added together, provides the deficit number in its totality. They are:

1) “‘Net changes in the deficit from insurance coverage provisions.’ That’s the spending side of Obamacare (or at least its net spending on insurance coverage provisions).”

2) “‘Net changes in the deficit from other provisions affecting direct spending.’ That’s the money that would have been used to fund Medicare (or, to a lesser extent, other federal health programs) but is now slated to be used to fund Obamacare instead.”

3) “’Net changes in the deficit from other provisions affecting revenues.’ That’s the taxes, fees, and penalties under Obamacare that don’t have much, if any, relation to insurance coverage provisions. (The taxes that do relate to insurance coverage provisions — namely, the tax on “Cadillac plans” and the fines for those who violate the individual or employer mandates — are instead included in the first area.)”

Only the first of those three areas has been updated — the spending side of Obamacare — which was done in April of 2014. Noting the “lower-than-expected enrollment in the Obamacare exchange, changes in health cost assumptions, and reduced penalties collected from individuals and employers due to the president’s selective enforcement of the law”, the CBO updated its numbers regarding the “net spending on insurance coverage provisions”, from $1.171 trillion in 2012, to $1.383 trillion in 2014.

But what of the revenue side of the deficit numbers? Those have not been updated since 2012. This includes the revenue from Medicare, as well as “non-coverage-related taxes, fees, or penalties”. By not updating these important revenue figures, the Senate Budget Committee has found that the CBO therefore “hasn’t incorporated the technical adjustments it has made to its baseline projections for federal health spending as they pertain to Medicare, its updated economic forecasts, or its scoring of Obamacare’s effects on labor markets”. That’s a huge problem. They are still hanging onto pre-Obamacare roll-out projections as it relates to revenue.

The Senate Budget Committee (SBC), therefore, has taking the time to calculate the revenue side of the deficit tally, specifically using the technical adjustments the CBO made to its baseline projections when it updated the federal health spending numbers earlier in 2014.

For the area related to Medicare and other federal health programs, (#2 above), the SBC found that the

“baseline changes reduce the amount of projected federal health care savings from the other provisions affecting direct spending in the legislation by a total of $132 billion over the 10-year period, from $979 billion under the CBO 2012 extrapolation to $847 billion based on the SBC staff calculation.”

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Therefore, the expected revenue from Medicare and other federal health programs over the newest 10 year period is estimated to be $132 billion less than what was projected in 2012 before Obamacare started.

In the final area which deals “other provisions related to revenue”, such as taxes, fees, and penalties, the lack of expected revenue is substantial. (Interestingly, a recent TIGTA report analyzing the just the medical excise tax corroborates this finding they are not meeting revenue estimates).

Ultimately, the provisions “related to revenue” all concern the labor market. As noted above, the CBO did score the affect of the labor market’s effect on Obamacare in order to update its federal health spending numbers. That was done in Feb 2014, and the CBO found that “by 2024 the equivalent of 2.5 million full-time workers will exit the labor force as a result of the law. CBO estimates the law will reduce the total number of hours worked by 1.5 to 2 percent during the FY 2017–2024 period and will reduce aggregate labor compensation by 1 percent over the same period.”

Therefore, the Senate Budget Committee (SBC) took this updated labor analysis and applied it to the third area, specifically looking at how that reduction in aggregate labor compensation would affect taxable income. The SBC found that “based on these assumptions, Obamacare is now projected to get $262 billion less in (non-coverage-related) revenue because of its detrimental effect on job growth, a notion that wasn’t registered in the CBO’s July 2012 scoring.”

How will Obamacare affect the deficit now?

“So, compared to the deficit surplus of $180 billion for 2015-24 that a straight extrapolation from the CBO’s 2012 scoring would yield, current projections now indicate that Obamacare’s decreased spending (in relation to prior expectations) will reduce deficits by another $83 billion (bringing the estimated surplus to $263 billion), but those projected surpluses will be more than offset by the projected $132 billion decrease in Medicare revenue and $262 billion decrease in tax revenue due to lower job growth.

In all, therefore, CBO projections indicate that Obamacare will increase deficit spending by $131 billion from 2015-24. That’s a $311 billion swing from the extrapolated 2012 numbers, a $240 billion swing from the actual 2012 numbers, and a $255 billion swing from what we were told when Obamacare was passed.”

That’s a mighty big change in only 2 years. How will Obamacare make up the revenue? Will it be an increase in premiums? We don’t know. Unlike last year, when Obamacare enrollment began on October 1, this year, Obamacare enrollment will not be until November 15 — 11 days after midterm elections. That’s when the new premium costs will come out. And when will the CBO update its deficit impact numbers?