#1: CBO’s latest re-estimates are of ACA’s costs, not of savings or of effectiveness in cost containment.
Specifically, CBO has re-estimated the costs of providing subsidies (tax credits) for participants in the ACA’s health insurance exchanges, as well as the law’s Medicaid expansion and small-business tax credits. Against this CBO has netted out some of the ACA’s measures designed to offset a portion of the costs, including penalties paid by individuals who fail to carry insurance, penalties paid by employers who fail to offer sufficient coverage, and an excise tax on high-premium health insurance plans. The re-scored provisions taken together are not by any stretch “savings,” but rather represent significant federal costs created by the ACA.
For the most part, press coverage has reflected good understanding of this point. As the aforementioned Post article states, “the law is still expensive,” and the headline of that article refers correctly to what the law “will cost taxpayers.” CNBC’s headline also refers to “Obamacare costs,” and even MSNBC’s refers to the “cost of the Affordable Care Act.” It is certainly good news when something costs less than we formerly thought it would, but the ACA still embodies costs that taxpayers did not face until its passage.
#2: It is routine for CBO projections to fluctuate; this fluctuation is mostly unrelated to the merits of a law.
One form of cognitive dissonance in budget debates is the supposition that if a budget projection improves, it must reflect something positive about a particular law. This is incorrect. Most of what feeds into CBO projections has nothing to do with a particular law’s policy merits, in the same way that a change in a stock price does not by itself tell you whether a particular company is well-run. All such changes tell you are that updated information suggests that a previous expectation has needed adjustment. CBO’s latest revisions similarly reflect ongoing corrections for projection inaccuracy and tell us virtually nothing about the policy merits of the ACA.
Projection errors are more than routine, they are essentially inevitable because none of us have a crystal ball foretelling the future. CBO constantly revises projections as updated data roll in. CBO had previously revised its ACA cost projections in January and will likely soon do so again. Regardless of how good or bad a law the ACA is, CBO’s projections will continue to warrant further revision.
#3: CBO is only re-estimating part, not all of the ACA; nothing in the latest report suggests that its overall fiscal effects are positive.
The ACA’s coverage expansion appears to be costing less than previously projected, but its financing provisions are also expected to bring in less savings than previously projected. A typical example of this is visible in the latest CBO analysis. The gross costs from 2016 to 2025 of the ACA’s coverage provisions have been lowered from $1.99 trillion to $1.71 trillion, but at the same time, expected revenue from the so-called “Cadillac plan tax” over the same period has been lowered from $149 billion to $87 billion. CBO has also substantiated elsewhere that the projected savings from the ACA’s Medicare growth cuts have also shrunk whenever slower health cost inflation has lowered the law’s projected gross costs.
Beyond this we know that several of the ACA’s other provisions designed to generate savings have not done so as originally projected. CBO has recently informed Congress that it is no longer possible to estimate the total net fiscal impact of the ACA. Properly understood the ACA should always have been expected to worsen federal deficits, and this conclusion is not changed by incremental changes to the projected cost of the ACA’s coverage expansion.
#4: The primary reason the latest cost estimate is lower is that CBO is now projecting the ACA will be less effective in expanding coverage – primarily because more people would have been insured even without the ACA.
In its latest estimates, CBO projects that by 2025 the ACA will reduce the number of uninsured by 25 million people. In January CBO’s projection had been 27 million. Overall, roughly 70 percent of the net cost reduction in the latest revision (dropping from $1.35 trillion over 2016 to 2025 to $1.21 trillion after including savings provisions) comes from an updated projection that the ACA will cover fewer people.
A graphical look at the recent history of CBO’s projections for the ACA’s effect on coverage provides perhaps the best means of understanding the movement in the latest estimate. The graphs here highlight year 2023 because it is the latest year common to all the projections shown.
This first graph shows that CBO now expects the ACA will do less to expand insurance coverage than it projected in January. Why is this? It’s mainly because CBO has recently concluded that fewer people would be uninsured even without the ACA. See the next graph.
It is understandable given the persistent controversies surrounding the ACA that its advocates would want to seize on any report that could appear to shed a favorable light on the law. The latest CBO report, however, does not support the extravagant claims being made on behalf of the ACA. It simply shows the ACA costing less primarily because more people would have been insured even had it never been enacted.
Charles Blahous is a senior research fellow at the Mercatus Center at George Mason University, a research fellow at the Hoover Institution, a contributor to Economics 21, and a public trustee for Social Security and Medicare.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.