Obamacare

How Much Will Obamacare Cost? Bet on 'More Than Expected'

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Obamacare estimates
Reason Infographic

As the nation prepares for the second enrollment period under The Affordable Care Act in November, there is officially no way of figuring out what Obamacare is going to do to federal deficits compared to the estimates used to push the program through Congress.

Back in 2009, it was really important to President Obama that people understand he would not "sign a plan that adds one dime to our deficits—either now or in the future. Period." He sold the plan as costing about $938 billion in its first decade of operation (2010 through 2019) but saving about $143 billion overall because of the various taxes and other revenue it raised. A 2012 Congressional Budget Office (CBO) report figured that Obamacare would shave $109 billion off the deficit between 2013 and 2022.

This past June, however, the CBO said it will no longer try to estimate the law's effects on the deficit. There have been too many delays, postponements, modifications, you name it, to the original bill. "Isolating the incremental effects of those provisions on previously existing programs and revenues four years after enactment of the Affordable Care Act is not possible," the CBO concluded.

So what's going on? The deficit for fiscal year 2014, which ended on September 30, came in at "just" $483 billion and 2.8 percent of GDP, the lowest figures in years. President Obama was quick to say it was because of his signature health-care reform plan. "Healthcare has long been the single biggest driver of America's future deficits," reports The Hill. "Healthcare is now the single biggest factor driving those deficits down."

At the same time, the CBO (and everyone else) expects deficits to start growing again in fiscal 2016, so it's a bit premature to break out the bubbly just yet. Senate Republicans have just released a report based on CBO data claiming that Obamacare will end up adding $300 billion to federal deficits between 2015 and 2024.

The Republican report is ultimately a political document, so its methods and conclusions deserve to be taken with more than a few grains of salt. But if past experience with massive government-run health care programs is any indicator, the odds are high that Obamacare will end up costing way more than it was supposed to.

Indeed, all signs suggest that overall health-care spending, including the government's already-large share, will keep growing over the next decade.

Official figures show that local, state, and federal governments will spend a record-high 46 percent of all health-care dollars this year and the percentage is expected to grow over the next decade, to 48 percent. 

The New York Times reports that by 2023, all spending on health care will equal 19.3 percent of GDP, which is "two percentage points more than last year." So whether it's through taxes, increased premiums, or out-of-pocket costs, we'll be paying more for health care in the coming years.

If that's disappointing, it's not exactly surprising. Government-run health-care programs have a track record of costing more than advertised.

Here are three examples to think about as the health care reform law gears up for its second year of sign-ups (for more information, go here).

1. Massachusetts Commonwealth Care. This is the plan supported by Gov. Mitt Romney that provided the very model for Obamacare. It guaranteed universal coverage and subsidized insurance premiums for low-income residents. Initial cost estimates came in at $472 million while actual costs were closer to $628 million for an error ratio of 1.2:1.

Masscare Estimate
Reason Infographic

 

2. Medicare. In 1967, Congress estimated that the nation's single-payer system for the elderly, Medicare, would cost $12 billion in 1990. The actual price tag was $110 billion, for an error ratio on 9.17:1.

Medicare Estimate
Reason Infographic

3. Medicaid DSH program. Medicaid pays for health insurance for the poor (its expansion represents the main way Obamacare in enrolling new beneficiaries). The "disproportionate share hospital program" (DSH) gives money to facilities that serve a large number of poor patients. In 1987, Congress figured DSH payments would be less than $1 billion in 1991. Instead, they totaled $17 billion, creating an error ratio of 17:1.

Medicaid DSH Estimate
Reason Infographic

Read more about phony-baloney health care accounting here and here. And check out Reason's special collection of new stories about "The Sad Story of Obamacare."