Jonathan Bernstein over at BloombergView has just published an article entitled “Obamacare Narrows the Deficit. Let’s Move On.” It can be found here. To put it mildly, the argument is far from the slam dunk that Bernstein imagines.
Bernstein reports on a recent study from the Congressional Budget Office (“CBO”) entitled “Budgetary and Economic Effects of Repealing the Affordable Care Act” (the “ACA”), and which can be found here. The report finds that, on a “static” basis , repealing the ACA would increase the Federal deficit by $353 billion over a 10-year projection period from 2016 to 2025.
Luxury miracle required
Cartoon by Martin Rowson
The report also finds that, on a “dynamic” basis that includes the negative effects of the act on incentives for working and investing, the ACA would increase the Federal deficit by a lower, but still substantial, $137 billion over the same period. The report also speculates that repeal would cause further increases in the deficit beyond 2025, given the trajectory of the various cost and revenue estimates, but admits that the CBO’s crystal ball gets pretty cloudy out that far.
The dynamic problem
Cartoon by John Trever
Let’s focus on the “static” numbers to avoid confusion and since later on we will need a breakdown of the results, which the CBO only provides on this basis. Since the “static” numbers present the best case for Bernstein, we will know that if the argument fails on this basis, then if will fail even more in a “dynamic” world.
For Bernstein, this $353 billion deficit reduction is the end of the story. In his words:
Does anyone expect supposedly deficit-obsessed Republicans to either drop repeal, or to find offsets to make repeal budget-neutral? Of course not….But like it or not, Obamacare reduces the deficit, and repealing it would put the U.S. a lot deeper in debt.
According to the CBO, Obamacare increases insurance coverage and reduces the deficit, so it’s game over and time to move on. Of course, Bernstein never asks himself how the ACA achieves this miracle of both increasing coverage and reducing deficits. I guess that, like the loaves and fishes of his less-gifted predecessor, Bernstein just assumes that President Obama can do this type of thing.
The ACA is actually a package deal. Three bills for the price of one. The first part is (in the CBO’s words) the “provisions concerning insurance coverage, including subsidies provided through the insurance exchanges, increased outlays for Medicaid, revenues from certain penalties and taxes, and related budgetary effects.” In other words, this is all the coverage-expanding stuff that you and I, and everybody else, think of when we hear the word “Obamacare”: the health care exchanges, the “individual mandate,” the “corporate mandate,” the subsidies, etc., etc., etc.
The second and third parts are different. Basically, when Team Obama saw the cost of the first part and realized that they would never get this past Congress or the American public, they tacked on some cost savings and tax increases. The cost savings are primarily in Medicare and the tax increases often apply to the health care industry, which helps maintain the ruse that there is some kind of organic connection between the parts of the bill, but make no mistake: these things have no necessary connection to part one.
Medi-care savings snatch
Cartoon by A.F. Branco
For example, there is one tax increase, a surcharge on investment income, which has absolutely nothing to do with health care, unless you believe that investing impairs your health. In which case, it probably should have been a tax on investment losses since I have always found these to be far more detrimental to my well-being than income.
Parts two and three have no logical link to part one, which is the essence of Obamacare. When I Google “Obamacare” and I come to the Wikipedia entry, it says “the expression Obamacare first was used in early 2007, generally by writers describing the candidate’s proposal for expanding coverage for the uninsured.” In the same article, they have a quote from the Eponymous One himself saying “I have no problem with people saying Obama cares. I do care.”
About cutting Medicare benefits and increasing investment taxes? Not likely. When President Obama discusses his legacy in his memoirs, a task in which he is probably already engaged judging from his earlier literary efforts, what does Bernstein think he is going to be talking about? The millions of dollars he saved in Medicare expenses or the millions of people he added to the ranks of the insured?
Put another way, the cost savings and tax increases could have been, and probably should have been (in the case of the cost savings), implemented regardless of the rest of the ACA. And they can be, and in the former case probably should be, preserved in any repeal of the ACA.
Overall, the “Affordable Care Act” is among the 10th largest tax increases imposed in the US since 1950, via Heritage Foundation.
But the worst thing about all of this liberal obfuscation is that this separation should have been blindingly obvious. The report – “as with past analyses of the ACA” – breaks all of its numbers into these three categories. Which really should have been a clue. There is no way that anyone reading the report – and perhaps here I am making a false assumption – could not realize that part one is logically separate from parts two and three. Lumping them all together and declaring that it’s “time to move on” is the sign of either an insufficiently subtle reasoning or a desire to deceive. Or maybe both.
So, what do the numbers show? The best summary is in Table 4 of the CBO report. This shows that part one increases deficits by a total of $1,156 billion over the 10-year period. This is offset by cost savings of $879 billion (predominately $802 billion saved in Medicare) and unrelated tax increases of $631 billion (predominately $346 billion in investment income surcharges).
So, the $353 billion deficit reduction that causes Bernstein to declare “time to move on,” and to accuse the Republicans of political posturing and bad faith, is purely the result of $1,510 billion of cost savings and tax increases that have absolutely no logical or necessary connection to the retention or repeal of Obamacare.
So, the question has to be asked: where’s the posturing and bad faith now?
A government-designed miracle. More is provided for less – in a universe directly adjacent to ours.
Cartoon by Lisa Benson
 In the “static” analysis, the CBO just looks at the direct budgetary effects of the proposed change, without estimating any secondary impacts it might have, such as changes in growth, employment, inflation or other macroeconomic variables, all of which will also have budgetary effects in an econometric model of the economy. In the “dynamic” analysis, the CBO tries to pick up these secondary effects, while admitting that this is much more error-prone.
 For those who care, beyond the 10-year horizon, the effect would probably be even more dramatic, since the cost savings from the Medicare changes are the fastest growing element of the deficit reduction.
Image captions by PT
This article appeared originally at Economic Man and is reprinted with permission.
Roger Barris is an American living in Europe for over 20 years, currently based in Switzerland, in his words “the last civilized country”. His education is in economics and finance and he works as a manager of real estate funds. His passion is policy though, about which he writes on his blog Economic Man.