CBO: Health Care Overhaul to Cost More Than Initially Projected

My column yesterday looked at the Congressional Budget Office's analysis of the president's budget proposal. The CBO did not offer a friendly assessment: It expects the economy to be more sluggish and federal debt and deficits to be significantly higher than the estimates put forth by the administration. One thing I didn't note, however, is that the office is now projecting the health care overhaul to cost $54 billion more than it initially estimated. This isn't due to any change to the legislation itself. Instead, it's a technical readjustment based on a more refined model. Thanks to those adjustments, CBO now expects that more individuals will end up in subsidized health insurance exchanges rather than on Medicaid, which despite its many problems is comparatively cheaper for taxpayers. Over the next decade, the difference is estimated to cost us just slightly less than the $61 billion Republicans are proposing to cut from the federal budget.

Revised estimates like these tell us two things: First, it highlights the uncertain nature of CBO's scoring. CBO is trying to predict the future, at least in some sense. But inevitably there are things it doesn't know, can't know, and will get wrong. To its credit, CBO has been entirely up front about this. But legislators on both sides of the aisle tend to use the office's estimates as if they're fact. We really don't know what the long term, overall budgetary effects of an incredibly complex law like the Patient Protection and Affordable Care Act will be.

So to some extent, we should take this revised estimate with a grain of salt. CBO isn't god, and it doesn't actually have a crystall ball revealing how many people will end up in the exchanges; it really is impossible to consistently and accurately predict that sort of human behavior years in advance. But we have a much better idea of what sort of subsidies people in the exchange are likely to receive. Consequently, what we can see from this re-estimate is that if more people do in fact end up in the exchanges than projected, or if Congress extends the subsidies to more people than planned—both of which are distinctly plausible outcomes—then the expected cost of the law will grow significantly beyond what was initially estimated.