Niall Ferguson poked a hornet’s nest Sunday with his Newsweek cover story, in large part for its claim that Obamacare would increase the budget deficit.
“Anyone who actually read, or even skimmed, the CBO [Congressional Budget Office] report knows that it found that [Obamacare] would reduce, not increase, the deficit,” wrote liberal economist Paul Krugman (referencing an outdated CBO analysis), “because the insurance subsidies were fully paid for.”
As usual, however, Krugman missed the more fundamental point underlying Ferguson’s argument: It’s Obamacare’s spending that matters.
In government budgeting, spending comes first; it drives all other fiscal consequences. Spending is how government programs and agencies do what they do. “In a fundamental sense, the federal government is what it spends,” says longtime budget expert Allen Schick.
So it is with Obamacare. Its core is a pair of huge new entitlements: health insurance subsidies and expansion of Medicaid and the Children’s Health Insurance Program. They will add $1.683 trillion in new spending from now through 2022, according to CBO’s latest estimate (which helpfully isolates these components in a stand-alone table).
Even after including $515 billion in associated tax hikes, the net cost increase totals nearly $1.2 trillion. The new spending is the one certainty of the President’s health care takeover; without it, Obamacare doesn’t exist.
To hide this cost, at least on paper, Obamacare’s authors tacked on a series of extraneous offsets that give the appearance of deficit reduction under the conventions of CBO’s estimates. These “savings,” however, turn out to be unreal or unrealistic.
For example, the package assumes more than $700 billion in Medicare cuts, most of which are unachievable. Why? Because they rely on implausible productivity gains by Medicare providers—hospitals, skilled nursing facilities, and home health agencies. As a result, reimbursements to these providers would fall increasingly below their costs—as much as 15 percent by 2019 and 40 percent by 2050—according to the 2012 Medicare trustees report. Providers could not sustain these negative margins, the trustees say, and “would have to withdraw from serving Medicare beneficiaries.”
Yet even if these savings were real—indeed, especially if they were real—Congress would probably end up rescinding them. Exhibit A: the “doc fix.”
The doc fix refers to a formula change Congress enacted in 1997 for annually updating Medicare physicians’ payments to slow the program’s cost growth. But when the new arrangement actually started reducing the doctors’ payments, Congress backed off. Since 2003, lawmakers have adopted a series of temporary delays, shielding physicians from payment cuts and wiping out growing amounts of assumed Medicare savings—more than $300 billion worth over the next 10 years, CBO estimates. Any other assumed savings in Medicare’s government-based price-fixing system will undoubtedly be subject to a similar fate.
Unless Obamacare is repealed, it will add $1.7 trillion in new spending. That much is certain. Any offsetting reductions are dubious, at best. Budgetary analysis and historical experience point to the same conclusion: If fully implemented, Obamacare will drive up health costs for all Americans and widen the river of government spending and debt.
