“You Lie!”: Assessing Claims About Obamacare’s Cost

Three days ago the Congressional Budget Office (CBO)  released its latest 10-year projection for the cost of the Obama administration’s Affordable Care Act (ACA), prompting a flurry of  “I told you so’s” from Republican Party leaders, conservative bloggers and other critics of Obamacare. That’s because the CBO report estimated  ACA’s 10-year cost to be $1.76 trillion, or nearly double what President Obama indicated in his September, 2009 nationwide address to a joint session of Congress . (You remember that speech – it’s the one during which Representative Joe Wilson called out “You lie!”)  In making the case for his health plan to Congress, Obama stated: “Now, add it all up, and the plan I’m proposing will cost around $900 billion over 10 years — less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration. Now, most of these costs will be paid for with money already being spent — but spent badly — in the existing health care system.  The plan will not add to our deficit.”   In fact, the CBO estimated at the time that the health care plan – which they eventually priced at $940 billion over a 10-year period – would not only not increase the deficit – it would actually reduce it.

The CBO cost estimates were a crucial factor in the health care debate because the projected decrease in the budget deficit provided political cover to ACA’s supporters.  With the latest 10-year CBO projections, however, ACA’s critics are crying foul, arguing that the public fell victim to a Democratic bait-and-switch scheme.  However, as liberal bloggers and other defenders of ACA were quick to point out (see here and here and here), the most recent CBO report did not suddenly change costs projections or any of the previous assumptions on which it based its estimated 10-year cost of Obamacare. That’s because the latest 10-year projection, which by law the CBO must produce every year, includes both additional costs but also more revenue – both a function of adjusting figures based on ACA’s implementation date. Remember, ACA doesn’t begin to be fully implemented until 2014, when provisions expanding Medicare eligibility for the poor and the insurance subsidies for middle-income people kick in.  Additional provisions, such as the tax on high-end insurance plans, don’t start until 2018.

The point is that the initial cost estimate Obama used in his 2009 speech was based on several years in which ACA wasn’t really in effect. The latest CBO estimate includes more years under actual ACA coverage, so the costs appear to be going up.  But so are projected revenues.  In fact, under the latest CBO projection, it is estimated that 10-year impact of ACA will reduce the budget deficit more than previously estimated.  As the (much maligned) Fox News accurately reports, “As expensive as it is, the CBO predicts the law will actually reduce the deficit because it increases the income from a range of tax increases and penalties on individuals, employers and insurance companies — by $81 billion more than last year’s projection.” To ACA’s supporters, then, conservative critics either failed to read the text of the CBO report, or they are deliberately misrepresenting its findings.

Projections that ACA will actually reduce the budget deficit are not likely to mollify its conservative critics who point out that the CBO also estimates that in total some 4 million people will lose employer-sponsored health coverage – a figure that belies Obama’s claim that ACA would not affect people’s existing health care coverage.  ACA’s defenders point out, however, that this number is less than 2% of those who currently have employer-based coverage.

And so the debate goes on. In assessing the competing claims, here’s what I think you need to keep in mind: efforts to estimate the likely cost of ACA a decade out are little more than educated guesses.  No one really knows what impact ACA will have on the budget deficit that far in advance.  To begin, given the current court challenge (the Supreme Court will hear challenges to ACA this month), no one can be sure which ACA provisions, if any, will still be in place a decade from now.  But even if ACA survives the legal challenge, there are far too many unknowns to have any faith in a 10-year projection based on estimates of costs and revenues.

Consider the CBO’s 10-year government budget estimates more generally.  Under the current law, the CBO is required to estimate government spending and revenues over a 10-year period, and its “non-partisan” projections are closely watched by government policymakers as well as those in the private sector. Independent analyses show, however, that the CBO’s 10-year budget projections aren’t very reliable.  This isn’t because CBO analysts lack expertise, or that they are somehow biased. It is because they are tasked with an impossible job. For starters, the CBO is required to assume that existing laws governing government spending and revenue aren’t going to change over the projected timeline.  That’s almost never the case.  But even if it were, other economic variables, including changes in GDP, inflation and even demographic factors are almost impossible to accurately anticipate.  Forget 10-year estimates – studies show that the CBO’s one-year budget projections aren’t much more precise than simply assuming that next year’s economic numbers will mimic this year’s.  As evidence, consider the following graph showing actual and projected CBO budget figures across a 10-year period:

As you can see, the CBO projections completely missed the coming housing collapse and the accompanying economic recession, not to mention spending on two wars – as did everyone else!  We should be skeptical, then, when we hear pundits evaluate ACA based on its estimated budgetary impact a decade from now.  Unlike Joe Wilson, I’m not accusing anyone of lying. But typically judgments about ACA say more about the pundit’s own ideological leanings than they do about any certainty about what ACA’s actual economic impact is likely to be, particularly that far ahead. This is not to say that the CBO projections are wrong – in fact, they may be the best projections available – but they are projections made with a great deal of uncertainty.  The truth, I think, is that there are simply too many moving parts and too many unknowns to be confident in predicting how ACA is going to play out.  But that won’t stop both sides from trying.