Deficit-Reduction Doubts: ObamaCare's Additional Costs

On the day the Affordable Care Act passed, the New York Times ran an op-ed by former Congressional Budget Office director Douglas Holtz-Eakin. He argued that despite the current CBO's projection that the law would reduce the deficit by about $140 billion over the next decade, the more likely outcome was that the law would increase the deficit in the neighborhood $550 billion. In the newest issue of Health Affairs, Holtz-Eakin (now of the American Action Forum) and co-author Michael J. Ramlet expand on this argument, projecting that the law will add nearly $1.5 trillion to the deficit during its second decade and arguing that the CBO's official projections aren't reliable because they "[hinge] on provisions of the legislation that the CBO is required to take at face value and not second-guess." To put it another way, the CBO is not allowed to account for political or logistical uncertainty—the possibility that future Congresses or administrations might not implement the law as originally designed. So Holtz-Eakin and Ramlet's essay is not a swipe at the CBO's work so much as a recognition of the scope and boundaries of the office's duties; indeed, the CBO has made similar points about the potential uncertainty of its projections.

And, as Holtz-Eakin and Ramlet write, the CBO also noted in its reports that implementing and operating the law would require a significant additional spending that was never scored for Congress—spending that the authors estimate will add hundreds of billions to the total price tag:

To operate the new health care programs over the first ten years, future Congresses will need to vote for $274.6 billion in additional spending. This unbudgeted spending includes discretionary costs of $7.5 billion for the Internal Revenue Service (IRS) to enforce and $7.5 billion for the CMS to administer insurance coverage. It also includes $50.0 billion in explicitly authorized health care grant programs and $209.6 billion for the Medicare Physician Payment Reform Act, which would revise the sustainable growth rate formula for physician reimbursement.

Just by themselves, these additional costs, which I don't recall having seen added up anywhere else, more than wipe out the law's projected deficit reduction.

It may turn out that the big-picture deficit estimates offered by Holtz-Eakin and Ramlet are high. They've taken all the areas where the law is likely to cost more than expected and added them up; it's entirely possible that some of those potential additional costs will not materialize. But given the sheer number of hidden costs, low-balled price tags, and political hurdles to implementation, it seems increasingly unlikely that the law's much-touted deficit reduction will ever come to pass.