So is ObamaCare going to reduce the deficit? Democrats often point to estimates saying that, thanks to its combination of Medicare reductions and tax hikes, it will actually reduce the deficit over time. Republicans look at the history of entitlements and the cost of the law and argue that it will certainly raise the deficit.
Another answer, though, is that is all depends on your assumptions about how and whether the law’s cost controls—its Medicare reductions and delivery system reforms—will work. That’s more or less what the Government Accountability Office (GAO) said in a report on the health law’s budgetary impact earlier this week. If the law’s cost-controls stick, then the agency says that the will result in “notable improvement” in the long-term budget outlook. But if the cost-controls derail, or fail to work as planned, then the budget outlook will be far worse as a result of the law, increasing deficits by about $6.2 trillion over the next 75 years.
With the law’s major spending and coverage provisions still almost a year away, it’s still too early to know exactly how it will work. But there’s reason to suspect that the cost controls won’t be as effective as hoped. As GAO’s report notes, a number of nonpartisan budget and entitlement officials, including Medicare’s Trustees, the Congressional Budget Office, and Medicare’s Office of the Actuary, have “all expressed concerns about whether certain cost-containment mechanisms” in ObamaCare can be sustained. The health sector productivity improvements probably won’t work out, Medicare officials have warned, and reimbursement cuts will cause providers to shut down or cease taking Medicare patients.
The GAO report doesn’t really attempt to quell the concerns of those other agencies. Instead, it notes the many uncertainties that should undermine confidence about predicting the ObamaCare’s long-range budgetary effects. Policies that affect enrollment in government health programs could change, and so could the rate of health care cost growth. State decisions about Medicaid enrollment complicate things further, as will employer decisions about whether to continue offering health benefits.
The projections are built out of a web of assumptions, and the assumptions basically determine how the estimates turn out: If you assume the law more or less works as planned, then the budgetary effect will be positive. If not, then it will add trillions to annual deficits over the coming decades. It’s still early, of course, but given the trouble ObamaCare’s administrators have had making the law work so far, I tend to assume that it won’t work as well as hoped.
One thing that the GAO reports is not so dependent on assumptions, however, is the overall debt picture going forward. Even if the health law’s cost-containment mechanisms work as well as hoped, they are “not sufficient to prevent an unsustainable increase in debt held by the public even under [the agency’s] more optimistic assumptions.” So that's the best case scenario: that ObamaCare's cost-controls work just fine—and the federal budget is still screwed.