6 Takeaways from the CBO's Latest Budget Report
The Congressional Budget Office just released a big new budget report outlining its most up-to-date expectations for the economy, the deficit, and Obamacare over the next decade.
It's the first major budget document from the office since the launch of the health law's exchanges last year, so there are plenty of interesting new figures and projections. Here are six key takeaways from the report:
1. Over the next decade, there will be millions fewer full-time workers because Obamacare creates disincentives to work. In 2024, the labor force will be smaller by about 2.5 million full-time equivalent jobs than it would have been in the absence of the health law. This represents a significant upwards revision; CBO had previously estimated that there would be about 800,000 fewer full-time equivalents in 2021 because of the law (as a comparison, it now projects the relative loss to about 2.3 million that year). As before, the expectation is that this reduction will stem largely from a reduction in the labor supply; with Obamacare in place, CBO expects that fewer people will choose to work in order to maintain their health coverage. The effect is expected to be concentrated in amongst part-time workers, for whom "the loss of [Obamacare's health insurance] subsidies upon returning to a job with health insurance is an implicit tax on working."
2. Fewer people are expected to gain insurance through Obamacare as a result of the botched rollout of the exchanges. The CBO expects that 1 million fewer people will enroll in Medicaid, and 1 million fewer will get coverage through the exchanges, thanks to the "significant technical problems that have been encountered in the initial phases of implementing the ACA." The CBO's projections were finished last year, however, so they don't incorporate the latest enrollment data.
3. CBO estimates that Obamacare's risk corridors program—the provision which has been dubbed a bailout of insurance companies—will result in a net revenue gain for the government rather than a net payout to insurance companies. The CBO projects that the government will make about $8 billion in payments to insurers under the program and receive about $16 billion in revenue in return, for a net gain of $8 billion. That estimate, which was completed in early December, is based on the experience with insurers participating in Medicare Part D, which also includes a risk corridor program. This is a hard one to estimate. As CBO's report says, "the government has only limited experience with this type of program, and there are many uncertainties about how the market for health insurance will function under the ACA and how various outcomes would affect the government's costs or savings for the risk corridor program." Whether you think this is a likely estimate, then, depends on whether you think Medicare Part D offers a useful guide for what to expect from Obamacare.
4. Taken by themselves, Obamacare's insurance provisions will increase the deficit by $1.4 trillion. The Affordable Care Act is a sprawling piece of legislation with a variety of revenue mechanisms built in that are supposed to offset the significant cost of the law. But CBO broke out the provisions that are specifically related to the provision of insurance coverage—the cost of the subsidies, the Medicaid expansion, the penalty payments made as a result of the mandate, the tax on high-end coverage, etc.—and found that, over the next 10 years, they will increase the deficit by $1.48 trillion. (See the CBO's table below.) This doesn't mean that Obamacare, as a legislative whole, is now scored as a deficit hike. But it does mean that its central component, the coverage expansion scheme, is.
5. Under current law, annual budget deficits will remain roughly equal to their current size for a few years before they start to rise again. The 2014 fiscal year's deficit is projected to total $514 billion, a big drop from the $1 trillion annual shortfalls we were seeing during Obama's first term. And next year's deficit is projected to be slightly smaller—about $478 billion. But that's where the reduction stops. After that, CBO projects that deficits will begin to rise again, both in dollar terms and as a percentage of the economy.
6. The federal debt is huge. In part because the nation has run such large annual deficits over the past few years, the total amount of debt held by the public is enormous. By the end of this year, outstanding national debt will equal about 74 percent of gross domestic product (GDP), rising to 79 percent over the next decade. That's going to create a drag on the economy for a long time to come. "The amount of debt relative to the size of the economy is now very high by historical standards," the CBO's report says. "Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis."
