RALEIGH – The Congressional Budget Office did a good job earlier this year of deflating the initial estimates of cost savings from ObamaCare. It took a great deal of professional commitment and courage for CBO staffers to tell their bosses what the latter didn’t want to hear.
Unfortunately, the final CBO cost estimates of the House and Senate health care plans are still way off the mark by any reasonable assessment. They show a net reduction in the federal budget deficit of $104 billion and $81 billion, respectively, over 10 years. These reductions are due entirely to the tax increases in each bill, not to any purporting “bending of the cost curve” in health care, and are highly unlikely in any case.
I’m not saying that CBO cooked its numbers or bent to pressure from House and Senate leaders. Instead, the crafters of the legislation gamed the system to generate fiscal estimates that met the agency’s technical definitions without bearing much of a relationship to fiscal and economic realities.
For one thing, the cost estimates don’t adequately account for the likelihood that employers will prefer to pay the new taxes rather than maintain their current health plans, thus vastly ballooning the cost of the so-called public option (because the taxes will often be less than the real cost of complying with the legislation’s new benefit mandates).
Second, the cost estimates assume cuts in Medicare reimbursements that Congress always promises and never delivers. That way, the CBO estimate for the health care bill can look like a net deficit reduction, when the real effect – after Congress “fixes” the Medicare component, as usual – will be a net deficit increase of hundreds of billions of dollars.
Third, the taxes are scored earlier than the new spending. As the Cato Institute’s Dan Mitchell explained in a recent paper (warning, PDF), “This makes the long-run costs appear deceptively low.” More than 90 percent of the spending in the Senate plan takes place in the second five years of the 10-year projection, and more than 84 percent of the spending in the House plan does the same.
Finally, lawmakers told the CBO to include other assumptions that do not comport well with reality. These include savings from future study commissions and a “Failsafe Budgeting Mechanism.” More generally, the estimates don’t include any contingency for the inevitable special-interest pleading that will come from moving insurance-coverage decisions from private bargaining or state legislative deliberations to the federal government. Every provider group under the sun – from surgeons to acupuncturists, from hospitals to hospice – will line up on Capitol Hill to make the case for higher reimbursements. They’ll usually succeed.
In short, anyone who believes that ObamaCare will actually cut the federal budget deficit over 10 years is indulging a dangerous fantasy. That’s what they do in Washington, admittedly, but the rest of us should have better sense than be sucked into their bizarre fantasy world.
Hood is president of the John Locke Foundation