The Unraveling of ObamaCare

NCPA October 17, 2013

Advocates marketed the Affordable Care Act (ACA or "ObamaCare") to the American public as a way to "bend the cost curve" of soaring health care costs downward. But despite its supporters' hopes, the 2010 legislation was fiscally reckless, markedly increasing the government's already-unsustainable health spending commitments at a time of record deficits. Three years later, the fiscal harm stemming from the ACA is as bad as -- and even worse than -- many experts predicted. The problem lies with the nature of the law itself, promising trillions in new government benefits while relying on dubious financing mechanisms. These problems were not only foreseeable, they were indeed widely foreseen, says Charles Blahous, a senior research fellow at the Mercatus Center at George Mason University.

Even before the president signed the ACA into law, non-partisan analysts demonstrated that the belief it would reduce federal deficits was based on a misunderstanding of government accounting.

• The ACA's projected savings from Medicare payment reductions were in effect being doubly committed: once to extend Medicare solvency and a second time to fund a massive coverage expansion.
• Both the Congressional Budget Office (CBO) and the Medicare Chief Actuary alerted Congress to the problem at the time.
• By counting projected savings only once, Blahous' own subsequent study demonstrated that the ACA would add roughly $340 billion to federal deficits in its first decade.

The reality was always likely to be worse than that estimate. The positive case for the ACA's financial integrity hung on two improbable outcomes: that all of its cost-savings provisions would work exactly as hoped, while none of its spending provisions would cost more than envisioned. Yet CBO warned at the time that many of the law's cost-saving provisions "might be difficult to sustain," while the Medicare Chief Actuary also warned that projected savings "may be unrealistic." No sooner was the ink dry on the ACA before these warnings began to prove correct.

The problematic nature of the ACA's finances is such that CBO's latest long-term budget outlook singled out its implementation as one of the biggest sources of future fiscal strains.

• Through 2038, CBO attributes 35 percent of the cost growth in federal health programs to population aging, 40 percent to general health inflation and another 26 percent to the implementation of this single law.
• CBO now projects that merely delaying ACA implementation for one year would save $36 billion.

Source: Charles Blahous, "ObamaCare's Financial Unraveling: Predictable, and Predicted," Real Clear Markets, October 9, 2013.