‘Obamacare’ and the myth of rising cost estimates
“Obamacare Price Tag Spikes by 54%”
— Headline on a news release by the House Energy and Commerce Committee, issued March 21, 2011
“Unhappy Anniversary: ObamaCare's cost jumps 8.6%”
— Headline on Wall Street Journal editorial, March 23, 2011
The venerable Congressional Budget Office issued an updated budget projection last week, and critics of the new health care law pounced.
In a news release, the House Energy and Commerce Committee, which is chaired by Rep. Fred Upton (R-Mich.), declared that “according to CBO’s latest estimates, the cost of Obamacare has increased by $500 billion. Meaning, in only one year, the cost has increased from an already staggering $938 billion price tag to $1.445 trillion.” The news release then cheekingly noted what a half-trillion dollars could buy. “1,002,004,008 iPad 2s,” for instance. Or “a Ford F-150 for every resident in New York City, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, San Antonio and Omaha.”
Meanwhile, the Wall Street Journal had some different math in a March 23 editorial, saying: “Obamacare will be far more expensive than advertised. To wit, CBO says the entitlement's health insurance subsidies will cost $1.13 trillion between 2012 and 2021, not $1.04 trillion, the prior estimate. . . . CBO is conceding that it significantly underestimated the bill's cost.”
Talk about fuzzy math! Did the price of the health care law go up 54 percent, 8.6 percent, or what? Let’s look at the numbers.
The cost of the health-care law has been one of its most contentious issues. President Obama had said it would cost less than $1 trillion over 10 years, and promised it would reduce the deficit in that period. The law, as scored by the CBO, met those benchmarks, but critics have charged the bill was deliberately structured to reach that result. (We have addressed those concerns previously.)
Last week was the third time that CBO has provided an estimate for the cost of the health care bill. Each time, the number has been a little different because of various technical factors, and also because different budget windows are being used, such as 2010-2019, 2012-2019 or 2012-2021. The longer the budget window, the bigger the costs and the revenues, in part because the population is getting larger and the gross domestic product is expected to increase.
The Energy and Commerce Committee came up with its increase by mixing apples and oranges. It compared the gross cost of insurance coverage provisions calculated for 2010-2019 (that’s the $938 billion number) with new figures for a different budget window, 2012-2021 (that’s the $1.445 trillion figure.) That’s kind of like saying the cost of pizza went up by comparing last year’s price for a 12-inch pie with this year’s price for a 16-inch pie.
Debbee Keller, a spokeswoman for the committee, defended the committee’s math, saying, “The legislation was written to hide the true costs of the law — it delayed much of the spending, providing about six years of spending and ten years of ‘pay fors.’ ” The new estimate, she said, shows “about eight years of benefits and ten years of ‘pay fors.’ ” — and she said the price tag will get only bigger as time goes on. “We predict the full cost will actually exceed $2 trillion” once the bill is fully implemented over 10 years.
We do not find this argument compelling. Yes, certain provisions do not kick in immediately, but neither do many of the new taxes. The revenue estimate by the Joint Tax Committee shows that $58 billion of revenue is raised in the first four years, compared to $380 billion over the last six years. As mentioned before, the cost numbers also get larger in later years because of population and GDP growth.
The Wall Street Journal came up with its increase by comparing a different set of numbers: the net cost (which strikes us as more reasonable than the gross cost used by the House committee) for the same time period, 2012-2021, as estimated in February 2011 and March 2011. But the Journal failed to note that the CBO cost estimate in February was actually lower than its initial estimate last year, so the overall effect from last year to this year is minimal.
The CBO generally remains aloof from the political back-and-forth over its numbers. But late Wednesday, the CBO addressed this question in its Director’s Blog. It lined up the numbers for all three of its estimates and then made the following point, underlying it for emphasis:
“Over the eight-year period that is common to all three analyses (2012 through 2019), the latest estimate of the net cost of the coverage provisions ($794 billion) differs by only about 2 percent from the original estimate ($778 billion); the projected gross costs . . . differ by only about 4 percent over that period.”
In budget terms over such a long period of time, these differences amount to rounding errors.
As the CBO put it, again underlining its point: “The evolution of the estimates does not reflect any substantial change in the estimation of the overall effects of [the health care law] from what was projected in March 2010.”
The Pinocchio Test
Critics of the health care bill need to recheck their math. The CBO’s new numbers do not suggest any noticeable increase in the cost estimates.
The Energy and Commerce Committee in particular used different time frames to come up with a wildly inflated number, and thus earns Three Pinocchios.