HERITAGE: Take CBO report with a grain of salt: Obamacare repeal would not increase deficits

Vince Coglianese Contributor
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Next week, the House of Representatives will vote on H.R. 2, a measure to repeal Obamacare in its entirety. The Congressional Budget Office (CBO) today released a report stating that repealing the health care law would increase the deficit by $145 billion between 2012 and 2019.

This report is based on the findings of the CBO’s March 2010 report that predicted that Obamacare would reduce the deficit. CBO does respectable work, but their analysts have their hands tied by assumptions they are required to make. The reality is that, in spite of the March report, Obamacare will not reduce the deficit, so repealing it would not add to the deficit, in spite of today’s report.

The CBO report should be taken with a grain of salt for a few reasons. First, CBO is required to assume that current law will be enacted as written, even in cases where reality couldn’t be further from what is on the books. CBO Director Doug Elmendorf himself makes this clear in the report:

“Current law now includes a number of policies that might be difficult to sustain over a long period of time. … If those provisions would have subsequently been modified or implemented incompletely, then the budgetary effects of repealing [the law] and the relevant provisions of the Reconciliation Act could be quite different—but CBO cannot forecast future changes in law or assume such changes in its estimates.”

Second, CBO must ignore the many budget gimmicks written into legislation. The health law does not include the “doc fix” to prevent an automatic cut to physicians’ reimbursement rates under Medicare. Congress recently passed a one-year fix and will continue to prevent the cuts in the future, but this will still not solve the ongoing problem. Nevertheless, pretending it will not happen won’t reduce the deficit.

Obamacare also includes billions in double-counted savings. Over the next decade, Obamacare includes $529 billion in cuts to Medicare and $70 billion in revenue from the new CLASS program. CBO assumes that these savings and revenues will offset the cost of new programs in the legislation. But Medicare savings are also pledged to extend the program’s solvency. Revenue from CLASS, a new long-term care insurance program, is the result of premiums collected to pay out benefits in outlying years and will not pay for new programs, either. Claiming that these dollars will pay for Obamacare is akin to trying to make a mortgage payment and buy a Macbook with the same paycheck: In the real world, you can spend money only once.

Then, Obamacare creates a new subsidy program for the middle class to purchase insurance. CBO predicts that 19 million Americans will benefit from this generous new entitlement program. But this doesn’t take into account Obamacare’s huge incentives for employers to drop their insurance programs and allow employees to instead purchase taxpayer-subsidized coverage. Former CBO director Doug Holtz-Eakin points out that both businesses and their employees stand to seriously benefit by dropping employer coverage and instead relying on taxpayer-subsidized health care. These incentives, combined with the various new insurance rules that will increase premiums on employer plans, will cause the cost of the subsidy program to greatly exceed expectations.

Since, in reality, Obamacare will not reduce the deficit, repealing the law does not need to be offset under pay-as-you-go (PAYGO) rules. Repeal is in fact in keeping with the spirit of PAYGO, which exists for the purpose of long-term deficit reduction. Moreover, PAYGO only requires deficit neutrality over a 10-year budget window, so a program could create savings in one decade but run trillions in deficits the next and still meet PAYGO requirements. The loopholes of 10-year scoring were not lost on the 111th Congress—the costliest provisions of Obamacare do not go into effect until 2014, so the CBO score actually includes only six years of spending.

If Congress is really serious about reducing long-term deficits, the best path forward is to accept the CBO report for what it is and also set aside PAYGO in favor of real budget process reform. In the meantime, repealing Obamacare is the right step toward reducing the federal deficit and getting health care reform right.

Cross-posted from The Foundry: http://blog.heritage.org/2011/01/06/take-cbo-report-with-a-grain-of-salt-obamacare-repeal-would-not-increase-deficits/