New Analysis Reveals Obamacare Will Cost More Than Expected

Kathryn Nix /

When Obamacare was passed into law, its proponents touted the Congressional Budget Office’s analysis showing that it would reduce the deficit. A lot has changed since then. Heritage research reveals that “a close examination of what CBO said, as well as other evidence, makes it clear that the deficit reduction associated with [Obamacare] is based on budget gimmicks, sleights of hand, accounting tricks, and completely implausible assumptions.”

Now, a recent hearing held by the House Energy and Commerce Subcommittee on Health has further revealed that the cost of Obamacare will be higher than expected. Douglas Elmendorf, Director of the Congressional Budget Office, highlighted that CBO’s March 2011 updated analysis of the health care legislation shows its coverage provisions costing $1.1 trillion between 2012 and 2021. This is $90 billion more than the prior month’s estimates for the same time period.

When the law was first enacted, the CBO estimated that its coverage provisions would have a gross cost of $778 billion from 2011 to 2019. As Elmendorf pointed out, the difference in cost estimates is based on the fact that they look at different time periods. This reveals one of the budget gimmicks used to downplay the true cost of Obamacare. Former CBO Director Douglas Holtz-Eakin pointed out that the law appeared less costly in its first decade because it “front-loads revenues and backloads spending.” He explained further that “the taxes and fees [Obamacare] calls for began immediately in 2010, but its new subsidies are largely deferred until 2014. This contributes to the illusion that [Obamacare] reduces the deficit.” The true 10-year cost of Obamacare will be apparent only once CBO is able to score a full 10 years of both revenue and spending changes under the new law.

Furthermore, CBO estimated last year that 16 million additional individuals would be covered under Obamacare’s expansion of Medicaid. However, Medicare’s Chief Actuary, Richard Foster, told the subcommittee that he believes that as many as 24.7 million people will be added to Medicaid.

Foster explained that the reason for this significant adjustment is that the “original estimate for the increase in Medicaid outlays was based on an assumption that Social Security benefits would continue to be included in the definition of income for determining Medicaid eligibility. If a strict application of the modified adjusted gross income definition is instead applied, as is now expected, then an additional 5 million or more Social Security early retirees would be potentially eligible for Medicaid coverage.”

Finally, under Obamacare, low- and middle-income Americans who are unable to obtain employer-sponsored insurance will be eligible for federally subsidized coverage through the new health exchanges. According to CBO, 19 million Americans will receive subsidies. But analysis by Holtz-Eakin shows that reliance on the subsidies could increase to as many as 35 million Americans because of the perverse incentives in Obamacare for employers to dump coverage altogether.

Eakin told the committee:

Consider a $12,000 policy in 2014 of which the employer would bear roughly three-quarters of $9,000. A simple comparison of $9,000 in savings versus a $2,000 penalty would seemingly suggest large-scale incentives to drop insurance.

At a time when Congress is fighting to control runaway federal spending, Obamacare will result in higher deficit spending in the future. Holtz-Eakin called the health care overhaul “the wrong economic policy at a pivotal moment in U.S. economic history.” To avoid further unsustainable government spending, Obamacare must be repealed.

This post was co-authored Amanda Rae Kronquist and Meera Yogesh, members of The Heritage Foundation Young Leaders Program.