ObamaCare’s Real Price Tag

The funding gap is a canyon by year 10.

As ObamaCare sinks in the polls, Democrats are complaining that the critics are distorting their proposals. But the truth is that the closer one inspects the actual details, the worse it all looks. Today’s example is the vast debt canyon that would open just beyond the 10-year window under which the bill is officially “scored” for cost purposes.

The press corps has noticed the Congressional Budget Office’s estimate that the House health bill increases the deficit by $239 billion over the next decade. But government-run health care won’t turn into a pumpkin after a decade. The underreported news is the new spending that will continue to increase well beyond the 10-year period that CBO examines, and that this blowout will overwhelm even the House Democrats’ huge tax increases, Medicare spending cuts and other “pay fors.”

In a July 26 letter, CBO director Douglas Elmendorf notes that the net costs of new spending will increase at more than 8% per year between 2019 and 2029, while new revenue would only grow at about 5%. “In sum,” he writes, “relative to current law, the proposal would probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window.” (The House bill has changed somewhat in the meantime, but not enough to alter these numbers much.)

The nearby chart shows this Grand Canyon between spending and revenue, including CBO’s long-term predictions. While these are obviously very coarse estimates, there’s also a projection of a $65 billion deficit in the 10th year—and “deficit neutrality in the 10th year is . . . the best proxy for what will happen in the second decade.”

Associated Press

That’s not our outlook. That’s what White House budget director Peter Orszag told the House Budget Committee in June. He added that “If you’re not falling off a cliff at the end of your projection window, that is your best assurance that the long-term trajectory is also stable.” The House bill falls off a cliff.

And the CBO score almost surely understates this deficit chasm because CBO uses static revenue analysis—assuming that higher taxes won’t change behavior. But long experience shows that higher rates rarely yield the revenues that they project.

As for the spending, when has a new entitlement ever come in under budget? True, the 2003 prescription drug benefit has, but those surprise savings derived from the private insurance design and competition that Democrats opposed and now want to kill. The better model for ObamaCare is the original estimate for Medicare spending when it was passed in 1965, and what has happened since.

That year, Congressional actuaries (CBO wasn’t around then) expected Medicare to cost $3.1 billion in 1970. In 1969, that estimate was pushed to $5 billion, and it really came in at $6.8 billion. House Ways and Means analysts estimated in 1967 that Medicare would cost $12 billion in 1990. They were off by a factor of 10—actual spending was $110 billion—even as its benefits coverage failed to keep pace with standards in the private market. Medicare spending in the first nine months of this fiscal year is $314 billion and growing by 10%. Some of this historical error is due to 1970s-era inflation, as well as advancements in care and technology. But Democrats also clearly underestimated—or lowballed—the public’s appetite for “free” health care.

ObamaCare’s deficit hole will eventually have to be filled one way or another—along with Medicare’s unfunded liability of some $37 trillion. That means either reaching ever-deeper into middle-class pockets with taxes, probably with a European-style value-added tax that will depress economic growth. Or with the very restrictions on care and reimbursement that have been imposed on Medicare itself as costs exploded.

On the latter point, the 1965 Medicare statute explicitly stated that “Nothing in this title shall be construed to authorize any Federal official or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided.” Yet now such government management of doctors and hospitals is so pervasive in Medicare that Mr. Obama can casually wonder in a recent interview with Time magazine how anyone could oppose the “benign changes” that he supports, such as “how the delivery system works.” Oh, is that all?

Democrats will return in the fall with various budget tweaks that will claim to make ObamaCare “deficit neutral” over 10 years. But that won’t begin to account for the budget abyss it will create in the decades to come.