Obamacare

Under the Assumption that ObamaCare Will Reduce the Deficit, It's Safe to Assume that ObamaCare Will Reduce the Deficit

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President Obama didn't have much to say about his health care overhaul during his State of the Union this year, but his new budget plan makes sure to remind readers how fiscally responsible the trillion-dollar plan is and take credit for its alleged deficit reduction. Here's what the introduction to the new budget proposal has to say about the health law's budgetary impact: 

We took many steps to re-establish fiscal responsibility, from instituting a statutory pay-as-you-go rule for spending to going line by line through the budget looking for outdated, ineffective, or duplicative programs to cut or reform.  And, most importantly, we enacted the Affordable Care  Act. Along with giving Americans more affordable choices and freedom from insurance company abuses, reform of our health care system will, according to the latest analysis by the non-partisan Congressional Budget Office, reduce our budget deficits by more than $200 billion in its first decade and more than $1 trillion over the second

This is true…or at least it's true provided you make the right set of assumptions. For example…

  • if you assume that the law will successfully raise roughly $500 billion in taxes
  • and if you assume that it will reduce Medicare payments and other expenditures by another $500 billion
  • and if you expect that the law's alleged delivery system reforms will keep producing savings year after year
  • and if the Independent Payment Advisory Board (IPAB) it sets up works exactly as planned and isn't repealed
  • and if you ignore the cost of the doc fix, which Obama's new budget plan does. 

But relying on this set of assumptions may not be the best way to project the law's actual budgetary effects, especially given that we now know for sure that President Obama signed off on the use of health care budget gimmicks right before the law passed. For example, the Medicare cuts may be difficult to sustain, and the delivery system reforms may not pay off. Members of both parties are already looking to repeal IPAB. And while the budget proposal is right to note that the CBO officially scores the law as a net deficit reducer, the CBO has also implicitly cautioned that the assumptions used to produce the deficit reduction projection might not be pan out, and that, in later years, ObamaCare may not be able to hold down Medicare spending.