“Myth: Obamacare only adds to the deficit, and it’s going to bankrupt this country.”
—Democratic National Committee, Nov. 27, 2013, on its “Your Republican Uncle” website
Obamacare raises revenue, increases spending and decreases projected spending on net. The increased spending adds to the deficit, meaning that the revenue increase and the reductions in projected spending have a relatively small impact on the deficit. In short, the DNC oversimplifies things in a misleading way.
Once again, the Your Republican Uncle website offers a short justification of its myth claim and gives a supporting link that takes us to the White House website. Here’s the short justification:
The Congressional Budget Office estimates that the Affordable Care Act will reduce the deficit , saving more than $200 billion in the first decade and $1 trillion in the following 10 years. So if you care about reducing the deficit or keeping actual American families out of bankruptcy, you should support Obamacare.
The White House website does not address the deficit myth by name, but when it deals with the ACA’s effect on the cost of health care we find this (bold emphasis added):
The health policy experts and economists who have looked at this legislation have said we are pursuing every possible mechanism to reduce health care costs. The Congressional Budget Office found that health insurance reform will reduce the deficit by $210 billion in this decade and by more than $1 trillion over the following 10 years. And a family of four would save as much as $2,300 on their premiums in 2014 compared to what they would have paid without reform.
We’ll address the CBO’s estimates in the following analysis.
Analyzing the Rhetoric
The DNC’s reference to the White House website material makes clear the nature of its myth claim. The DNC sends the message that the ACA reduces the deficit. The White House version places heavier emphasis on the idea that cost-saving measures built into the health insurance provisions of the law deserve credit for the deficit reduction. The DNC makes a vague claim, but the link to the White House would clarify it to mean the ACA reduces health care costs and thereby reduces the deficit.
The ACA’s effects on medical costs?
The DNC suggests the government saves on medical costs thanks to Obamacare. There’s some truth to that, as the CBO points out, if the entire law is applied as written. The key to lowering the government’s costs from medical care comes from placing a soft cap on the growth of Medicare spending. The left-leaning Urban Institute issued a report in 2012 playing up the ways the ACA might help reign in health care spending, including by limiting Medicare reimbursement rates. The CBO chart pictured below and to the left shows some of the savings numbers.
On the other side of the ledger, some aspects of the ACA increase health care spending, most obviously by expanding Medicaid and providing subsidies to help pay for private insurance. These factors find their way into the CBO’s estimates. The CBO estimates the gross cost of insurance coverage provisions of the ACA (subsidies, Medicaid, CHIP) at $1.8 trillion for the 2015-2024 period. The CBO estimates revenues from the law will offset those costs by a little over $400 million, leaving a 10-year net cost of about $1.4 trillion.
If the ACA will cut projected long-term deficits on net, then it needs to supply at least $1.4 trillion in savings over ten years given the spending built into the bill. The largest single part of that savings is supposed to come from lower spending on Medicare (including Medicare Advantage programs) and revenue increases from taxes created through the ACA.
It’s also important to note that the cuts to the budget deficit are cuts in budget deficit projections. Regardless of the ACA’s effects, the deficit will increase long-term under these projections. The CBO projects that deficits won’t grow as quickly, thanks to the ACA’s increased taxes and expected savings on Medicare spending. And the CBO stipulates that its estimates carry a high level of uncertainty thanks to the size and scope of the ACA.
Counting the costs
The net cost of the ACA does not serve as the last word on deficit reduction.
A deficit occurs when federal spending in a given year exceeds revenue. One can cut the deficit by cutting spending, increasing revenue or both. The ACA increases spending and increases revenue. If the government sticks with the ACA’s limits on Medicare spending then projected spending will increase less with the ACA than without. But the government may still spend more and even increase its deficit year by year.
It’s worth noting that the government’s analysts developed an alternative future projection scenario based on the expectation that the government may not follow through on the ACA’s cuts to Medicare spending. It’s also worth noting that various Republican budget plans cut future Medicare by about an amount equal to the amount cut by the ACA. That means saying we should favor the ACA for the sake of cutting the deficit is among the flimsiest of justifications. Cutting future spending on Medicare by the amount called for in the ACA would produce greater deficit reduction without the other insurance provisions in the ACA. Those other provisions don’t cut the deficit. They increase the deficit.
Will Obamacare bankrupt America?
We wondered what Republican uncles might mean when they say Obamacare will bankrupt America. We found House Speaker John Boehner made that claim back in 2011. In context, it seems that Boehner was saying Obamacare contributes to the deficit. That’s true with respect to the spending provisions in the bill, but false in terms of the net budgetary effect of the bill, at least according to estimations such as those we’ve looked at. Taken charitably, your Republican uncle is saying Obamacare adds to entitlement spending in a way that makes the long-term deficit problem much more difficult to solve.
The Government Accountability Office summed up the ACA’s role in the future budget:
Reducing health care cost growth alone, however, is not sufficient to put the federal budget on a sustainable path. Even in simulations assuming health care cost growth can be constrained for an extended period, our simulations show debt held by the public rising as a share of GDP over time, particularly assuming historical trends and policy preferences for revenue and other spending continue. Therefore, more needs to be done to change the fiscal path. This will likely require difficult decisions about both federal spending and revenue.
But Obamacare won’t literally bankrupt America all by itself. To use the analogy of a sinking boat, Obamacare remedies the situation by drilling a new hole in the hull and providing a larger bucket with which to bail.
“Myth: Obamacare only adds to the deficit“
The ACA certainly has functions other than adding to the deficit. But we think the DNC intends to say the health care law does not increase the deficit. This the type of case we highlighted on our “About” page, where true statements can serve as the fulcrum for a misleading argument. Assuming the law is executed as written, which is far from certain, the law taken in isolation reduces the anticipated size of the deficit. But at the same time, the law adds new entitlement spending that contributes to the mounting U.S. debt problem. The DNC obscures the sense in which the reform law contributes to the deficit.
(Myth): “It’s going to bankrupt this country.”
Obamacare won’t bankrupt the United States by itself. But, as noted above, it adds to entitlement spending as the nation approaches a fiscal crisis. It makes that thorny problem more difficult to solve moving forward. The DNC’s presentation promotes the opposite impression.
“The Democrat’s Guide to Talking Politics with Your Republican Uncle.” Your Republican Uncle. Democratic National Committee, 27 Nov. 2013. Web. 10 May 2014.
“Get the Facts Straight on Health Reform.” The White House. The White House, n.d. Web. 09 May 2014.
Zuckerman, Stephen, and John Holahan. “Despite Criticism, The Affordable Care Act Does Much to Contain Health Care Costs.” Urban Institute. The Urban Institute, Oct. 2012. Web. 09 May 2014.
Banthin, Jessica, and Sarah Masi. “How Has CBO’s Estimate of the Net Budgetary Impact of the Affordable Care Act’s Health Insurance Coverage Provisions Changed Over Time?” CBO.gov. Congressional Budget Office, 20 Mar. 2013. Web. 10 May 2014.
“Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act, April 2014.” CBO.gov. Congressional Budget Office, Apr. 2014. Web. 08 May 2014.
“Updated Budget Projections: 2014 to 2024.” CBO.gov. Congressional Budget Office, 14 Apr. 2014. Web. 08 May 2014.
United States. Government Accountability Office. PATIENT PROTECTION AND AFFORDABLE CARE ACT: Effect on Long-Term Federal Budget Outlook Largely Depends on Whether Cost Containment Sustained. United States Government Accountability Office, Jan. 2013. Web. 10 May 2014.
United States. Department of Health & Human Services. Centers for Medicare & Medicaid Services. Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended. Centers for Medicare & Medicaid Services, 22 Apr. 2010. Web. 10 May 2014.
Miller, Emily. “Boehner: ObamaCare Will Bankrupt Our Nation.” Human Events. The Human Events Group, 07 Jan. 2011. Web. 10 May 2014.