As the new Congress settles in, the House of Representatives prepares to vote on January 12 on a measure to repeal Obamacare. Proponents of the health care law claim that repeal would increase the federal deficit and that a vote to kill Obamacare without offsetting the “cost” is hypocritical.
This couldn’t be more wrong. For starters, Obamacare will not reduce the deficit. Though the Congressional Budget Office (CBO) projected that the health law would create $124 billion in savings, the CBO is required to make unlikely assumptions and disregard budget gimmicks included in the legislation. Taking this into account causes the cost of Obamacare to skyrocket.
First, Obamacare does not include the “doc fix” to prevent an automatic cut to physicians’ reimbursement rates under Medicare. Earlier versions of reform included a fix, which made those proposals tip heavily into the red. Congress recently passed a one-year fix and will continue to prevent the cuts in the future, but it will still not solve the ongoing problem. Nevertheless, pretending it will not happen won’t reduce the deficit.
Obamacare also includes billions in double-counted savings. Over the next decade, Obamacare includes $529 billion in cuts to Medicare and $70 billion in revenue from the new CLASS program. CBO’s score assumes that these savings and revenues will offset the cost of new programs in the legislation. But Medicare savings are also pledged to extend the program’s solvency. Revenue from CLASS, a new long-term care insurance program, is the result of premiums collected to pay out benefits in outlying years and will not pay for new programs, either. Claiming that these dollars will pay for Obamacare is akin to trying to make a mortgage payment and buy a Macbook with the same paycheck: In the real world, you can spend money only once.
Obamacare also creates a new subsidy program for low- and middle-income Americans to purchase insurance. CBO predicts that 19 million Americans will benefit from this generous new entitlement program. But this doesn’t take into account Obamacare’s huge incentives for employers to drop their insurance programs and allow employees to instead purchase taxpayer-subsidized coverage. Former CBO director Doug Holtz-Eakin points out that businesses, especially those with mostly low-income employees, could drop their health plan, raise wages to make up for the lost benefit, pay the Obamacare employer penalty for not offering insurance, and still come out ahead. These incentives, combined with the various new insurance rules that will increase premiums on employer plans, will cause the cost of the subsidy program to greatly exceed initial projections.
Finally, repealing Obamacare does not need to be offset under pay-as-you-go rules (PAYGO). To the contrary, repeal is in keeping with the spirit of PAYGO, which exists for the purpose of long-term deficit reduction. Moreover, PAYGO only requires deficit neutrality over a 10-year budget window, so a program could create savings in one decade but run trillions in deficits the next and still meet PAYGO requirements.
This fact was not lost on the 111th Congress—the costliest provisions do not go into effect until 2014, so the CBO 10-year score includes only six years of spending. Experts agree that the CLASS program alone will be bankrupt by its second decade of existence, emphasizing the importance of considering a policy beyond one decade. Heritage budget expert Brian Riedl writes, “Nonsensically, repealing CLASS would violate the ‘pay as you go’ law against expanding budget deficits. This is because ‘pay-go’ focuses only on the 10-year $70 billion ‘cost’ of repeal and ignores the trillions of dollars that would be saved thereafter.” The same applies to Obamacare in its entirety.
PAYGO merely “provides lawmakers with a convenient talking point and taxpayers with a false sense of security on budget reform,” as Riedl puts it. If Congress is really serious about reducing long-term deficits, the best path forward is to set aside PAYGO in favor of real budget process reform. In the meantime, repealing Obamacare is a good first step toward reducing the federal deficit.