Which seems peculiar to me about this article is that Obamacare is expected to boost the deficit by $131 billion. At the same time, fact that the government has announced the budget deficit has reduced by $200 billion.
That's because the article is silly.
When Obamacare passed it was expected to boost spending by X amount to cover millions of people. In order to keep the deficit from increasing, Medicare spending needed to drop by Y amount and new revenue raisers in the law had to bring in Z amount. As long as Y + Z ≥ X, the deficit would be in good shape. In other words, as long as Medicare savings and new revenues together add up to more than new Obamacare spending, all is well.
Three things have happened since the law was designed and passed in 2010:
1. The price tag of Obamacare fell. (X shrank)
The law's new spending (some on subsidies for private insurance premium, some on expanded Medicaid coverage) turned out to be
less than X, meaning the law's price tag--and thus the amount we need to find offsets or revenues to cover--has dropped. And that's because 1) on the private insurance side, premiums are lower than the CBO expected them to be, and 2) on the Medicaid side, costs and enrollment are both going to be lower than was expected. All of which makes the law cheaper.
Lower premiums (yes, really) drive down Obamacare’s expected costs, CBO says
The health-care law's expansion of insurance coverage will cost $104 billion less than projected over the next decade, according to revised estimates from nonpartisan budget analysts Monday. Obamacare's lower-than-expected costs will come largely because premiums will be cheaper than previously thought.
An Update to the Budget and Economic Outlook: 2014 to 2024
In the Medicaid program, lower prices for medical services and labor than CBO previously projected are also expected to reduce spending slightly—by a total of $40 billion (or about 1 percent) between 2015 and 2024.
Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision
The projected net savings to the federal government resulting from the Supreme Court’s decision arise because the reductions in spending from lower Medicaid enrollment are expected to more than offset the increase in costs from greater participation in the newly established exchanges.
Now that the first fiscal year of the coverage expansions has ended and relevant data came out last week, this has been born out by experience.
CBO Provides First Snapshot of Coverage Expansion Costs
October 10, 2014 -- The cost of expanding insurance coverage under the health law in fiscal 2014 was far lower than budget experts predicted when Congress passed the overhaul four years ago, according to figures released this week by the Congressional Budget Office (CBO). . .
The Treasury paid out $13 billion in subsidies to help lower-income Americans pay premiums for plans sold on insurances exchanges and in some cases, cover their out-of-pocket costs. By comparison, CBO projections in March 2010 pegged the cost of the subsidies at $19 billion for the fiscal year that ended Sept. 30.
2. Medicare spending dropped a lot more than was needed to balance Obamacare's books. (Y grew)
Health spending growth throughout the economy dropped off after Obamacare passed which, among other things, has made Medicare much cheaper than was expected.
Per Capita Medicare Spending is Actually Falling | SEPT. 3, 2014
Medicare spending isn’t just lower than experts predicted a few years ago. On a per-person basis, Medicare spending is actually falling.
If the pattern continues, as the Congressional Budget Office forecasts, it will be a rarity in the Medicare program’s history. Spending per Medicare patient has almost always grown more rapidly than the economy as a whole, often by a wide margin.
We've reached a point where Medicare spending over the decade is almost
one trillion dollars cheaper than it was on track to be before Obamacare. Needless to say, a lot more future Medicare spending has melted away than was necessary to balance Obamacare's books.
Affordable Care Act effect linked to lower medical cost estimates | September 5, 2014
WASHINGTON — Estimates of U.S. health-care spending for the next five years have been lowered by two federal agencies, and the Patient Protection and Affordable Care Act is getting much of the credit. . .
The health law has been criticized by Republicans as costly and unsustainable. Now, four years after its arrival, the law's mandated program cuts and the medical practices it encourages — limiting unneeded procedures, and keeping people out of the hospital longer — are cited by economists as key ingredients in trimming the nation's medical bill.
We've reached a point where Medicare + Medicaid + new ACA spending are, combined, on track to cost less than just Medicare + Medicaid were going to cost before the law every passed. That's astonishing!
3. Revenues have recovered. (Z grew)
As you noted, the deficit has been shrinking. And that's because revenues are growing faster than federal spending:
The Federal Deficit is Now Smaller than the Average Since the 1980s
The deficit shrank as federal revenues rose by about 9% and spending climbed by only 1%. Two key factors have driven the plunging deficit in recent years. First, more Americans are now working, paying taxes, and off the unemployment rolls. The unemployment rate for September fell below 6% for the first time since 2008, while the number of working Americans is at a record high, according to the latest jobs report from the Department of Labor.
In fact, as that WSJ piece notes, we're actually below the recent historical average at this point:
In fact, adjusted for the size of the economy, today’s deficit is now smaller than the average deficit going back to the 1980s. The 2014 deficit came in at 2.8% according to the CBO estimate, compared to the 3.2% average since 1980. By that measure, President Barack Obama‘s deficit this year is one that would have been acceptable to President Ronald Reagan. During Mr. Reagan’s presidency, the deficit averaged 4% of GDP.
So the Senate GOP claim that revenues aren't materializing because of labor force reductions seems...questionable.
It doesn't take a math genius to realize that if Y + Z ≥ X is true to begin with, then X gets smaller and Y and Z both get bigger, that relationship is even
more true.
More importantly, their claims don't quite pass the small test.
