August 21, 2013 | Issue Brief on Health Care
At a time when the nation has nearly $17 trillion in national debt and is running annual trillion-dollar budget deficits, largely attributed to existing entitlements, Obamacare creates two new entitlements projected to cost nearly $1.8 trillion over the next decade.
While Obamacare is technically scored by the Congressional Budget Office (CBO) as a deficit reducer, when rational assumptions are made and budget gimmicks are omitted, the law is far from paid for, likely increasing future budget deficits and further burdening current taxpayers and future generations.
The two main coverage components of Obamacare are a massive Medicaid expansion and new government subsidies to purchase coverage in the government-run state exchanges. The new spending on these provisions will cost taxpayers nearly $1.8 trillion from 2014 to 2023.
Beginning in 2014, Obamacare expands Medicaid eligibility to all individuals earning up to 138 percent of the federal poverty level (FPL) in any state that chooses to accept this expansion. This expansion is projected to add an additional 13 million Americans to Medicaid by 2023, mostly childless adults, costing federal taxpayers $709 billion from 2014 to 2023.
In addition, Obamacare creates government subsidies for individuals and families earning between 100 percent and 400 percent of the FPL. In 2013, 400 percent of the FPL was almost $46,000 for an individual and $94,200 for a family of four. By 2023, 19 million people will receive subsidies, costing taxpayers over $1 trillion from 2014 to 2023.
Obamacare’s new spending is offset in part by the imposition of 18 new taxes and penalties. The CBO and the Joint Committee on Taxation project that Obamacare’s taxes will raise $771 billion in new government revenue from 2013 to 2022. The taxes have been phased in since the law’s passage, with a few still waiting to start.
Many of these taxes fall directly on the middle class, while others will affect taxpayers indirectly through increased costs for goods, higher insurance premiums, or lost wages.
Another major source of funding for Obamacare’s new entitlement spending comes from Medicare. Obamacare reduces Medicare reimbursements by an estimated $716 billion from 2013 to 2022, and that money is counted by the CBO as an offset for some of the law’s new spending.
However, these “savings” are highly unlikely to accrue in reality because of the severe impact these payment reductions would have on seniors’ ability to access care. The Medicare Trustees project that if the cuts went into effect, 15 percent of Medicare Part A providers, such as hospitals, skilled nursing facilities, and hospices, would become unprofitable and likely stop seeing Medicare beneficiaries by 2019, with this percentage increasing to about 25 percent in 2030 and 40 percent by 2050.
As the trustees point out, “Under such circumstances, lawmakers might feel substantial pressure to override the productivity adjustments, much as they have done to prevent reductions in physician payment rates.”
Of course, while overriding these cuts would help protect Medicare beneficiaries’ access to care, it would leave that much more of Obamacare unpaid.
The Government Accountability Office (GAO) estimated the cost of Obamacare over the long-term if certain cost-containment measures were indeed overridden. Under that alternative scenario, which assumes that “historical trends and policy preferences continue,” the GAO found that Obamacare would increase the primary deficit by 0.7 percent of gross domestic product (GDP). Senator Jeff Sessions (R–AL) and the Senate Budget Committee staff, who commissioned the GAO report, translated the 75-year percentage estimate into today’s dollar amount, which would be $6.2 trillion over the next 75 years.
When realistic assumptions are made, it is clear that Obamacare will cost much more than originally anticipated and that Americans will be paying the steep price in a variety of ways for many years to come.
—Alyene Senger is a Research Associate in the Center for Health Policy Studies at The Heritage Foundation.
Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate of the Budgetary Effects of the Insurance
Coverage Provisions Contained in the Affordable Care Act,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf (accessed August 20, 2013).
U.S. Department of Health and Human Services, “2013 Poverty Guidelines,” http://aspe.hhs.gov/poverty/13poverty.cfm (accessed August 20, 2013).
Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate.”
Joint Committee on Taxation, “Estimated Revenue Effects of a Proposal to Repeal Certain Tax Provisions Contained in the ‘Affordable Care Act (“ACA”)’,” June 15, 2012, and Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate.” The total amount of tax revenue collected from the individual mandate, employer mandate, and 40 percent excise tax on high-cost health plans comes from the CBO’s May 2013 estimate. For all other taxes, the amount of tax revenue totaled comes from the Joint Committee on Taxation’s June 2012 estimation.
For a detailed explanation of the impact of Obamacare’s taxes, see Curtis Dubay, “Obamacare and New Taxes: Destroying Jobs and the Economy,” Heritage Foundation WebMemo No. 3100, January 20, 2011, http://www.heritage.org/research/reports/2011/01/obamacare-and-new-taxes-destroying-jobs-and-the-economy.
Centers for Medicare and Medicaid Services, 2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, May 31, 2013, p. 206, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf (accessed July 30, 2013).
U.S. Government Accountability Office, Patient Protection and Affordable Care Act: Effect on Long-Term Federal Budget Outlook Largely Depends on Whether Cost Containment Sustained, GAO-13-281, January 2013, p. 19, http://www.gao.gov/assets/660/651702.pdf (accessed August 20, 2013).
The Senate Budget Committee staff reported that they had arrived at their figure by obtaining from the Medicare actuary the exact GDP and discount-rate assumptions for every individual year, doing the equivalent calculation on a per-year basis, and summing up the estimated results. The staff also indicated that when they earlier shared their methodology with the GAO, they were told that it was a “reasonable method.”