‘Obamacare:’ Twice as much as estimated?

at 06:02 AM ET, 03/27/2012

“The health care law “is going to come with a price tag pretty hefty, of $1.76 trillion. That’s twice as much as originally thought.”

— Voiceover in new National Republican Senate Committee Web ad, March 22, 2012

With the Obama health care law now being argued before the Supreme Court, perhaps it is time for a refresher course on its costs.

 A Web ad — titled “Obamacare Fact Check” — released last week by the NRSC is a case in point. Among its many charges of “promises broken” is the suggestion that the health care law already costs twice as much as originally estimated. Is that really the case, given that key provisions of the law have not even taken effect?

 

The Facts

First of all, a caveat: all of these budget numbers must be examined with the skepticism. The Congressional Budget Office does as good a job as possible, but its numbers are only estimates — and no one can truly predict the state of the economy and health care years from now, let alone the real impact of the law. 

That said, Congress lives and dies by these estimates. Democrats pushing the health care in particular were dazzled by one figure — $1 trillion. The gross cost of the bill was supposed to be below $1 trillion for first 10 years. And then the deficit reduction over the next 10 years was supposed to be $1 trillion.

We’ve never quite understood the appeal of such nice, round numbers. But they were important for getting votes for the legislation, especially among conservative Democrats.

 For instance, a lengthy Washington Post reconstruction of passage of the health care law depicted White House chief of staff Rahm Emmanuel citing the $1 trillion deficit reduction-over-the-next-10-years figure to win the vote of Rep. Melissa Bean (D-Ill.). He secured her vote, but she narrowly lost her reelection race in what was supposed to be a safe seat.

 But that figure was pretty misleading. The CBO had merely offered a tentative guess, with significant caveats, that the health care law would reduce the deficit within a “broad range of around one-half percent of GDP [gross domestic product].”

 Democrats simply took that percentage, multiplied it against the predicted size of the GDP 20 years from now (itself a pretty fuzzy figure) and presto, they had a number. But it is a fairly meaningless one.

The other $1 trillion figure — the gross cost of the health care law for the first 10 years — was more based on actual CBO number-crunching. But, again, it was an important marker for Democrats.

“Now, add it all up, and the plan I’m proposing will cost around $900 billion over 10 years, less than we have spent on the Iraq and Afghanistan wars and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration,” President Obama said in a speech to Congress in 2009.

The gross-cost figure, as calculated by CBO, was actually $940 billion for the years 2010-2019. But it was a bit of a low-ball number because the law takes four years to fully implement. So it really only measured six years of major costs. (The CBO and the Joint Committee on Taxation also calculated the law would slightly reduce the deficit in its first 10 years, because of new taxes and spending cuts that begin to bite in 2013.)

 Opponents of the law have long complained that the real costs of the law were masked by the long implementation period, and so they pounced when the CBO earlier this month released updated estimates of the insurance coverage provisions, indicating that the gross cost of the law would be $1.76 trillion for the years 2012-2022. Hence, the NRSC’s claim that the bill was “twice as much as originally thought.”

 But there is less to this than meets the eye. First of all, the new estimate is based on a different budget window — and it is an 11-year number, not a 10-year number like the original estimate. So the two estimates are not comparable.

 When the same years are put side by side, you will see there are only slight differences in the estimates, mainly for technical reasons. For instance, in 2016, the original estimate showed gross costs of $161 billion; now it’s $175 billion. That’s a virtually rounding error in the federal government. The CBO even suggests that the “net cost” estimates (adding in items such as mandate fines) have declined slightly; its original estimate was $788 billion.

 The CBO was so concerned about the misinterpretation of its data by opponents of the law that it issued a second statement, clarifying that its estimates were little changed over the past two years. (Note: the CBO has not updated its cost estimates of the entire law.)

Brian Walsh, communications director for the NRSC, defends the use of the figure. “The simple reality is that the cost of their bill has gone up dramatically — as Republicans predicted it would — and this latest news just highlights that the number they used to sell the bill was rigged,” he said. “It was a budget shell game.”

 Still, here’s an interesting experiment. The CBO has thus far only estimated nine years of a fully implemented health care law. But if you assume that the cost in 2023 would be the same as 2022 — a generous assumption — you end up with a ten-year price tag of about $2 trillion. (The “net cost” would be $1.4 trillion.)

 

The Pinocchio Test

 Playing games with budget windows is a time-honored congressional exercise, used by both parties. (As we have often noted, George W. Bush famously squeezed a $1.6 trillion tax cut in a $1.35 trillion budget box, and we are still living with the aftermath.)

 But Democrats risk getting hoist on their own petard here. The NRSC is absolutely incorrect to claim that the price tag is twice as much as originally thought, since the year-by-year budget numbers show little change in cost estimates.

 But Democrats sold the bill, even to their own members, as a $1-trillion, 10-year vehicle. It could well turn out to be a $2 trillion 10-year vehicle, as anyone with a calculator could have figured out at the time. In other words, the cost of the law may not be twice as much as estimated, but it is on track to be twice as much as touted.

So the NRSC is wrong, but whether by accident or not, we’re not entirely sure they are being misleading.

Two Pinocchios

 


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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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