One of the ongoing battles of the past several years has been the debate over the accounting for President Obama's national health care law. Earlier this week at Forbes, Avik Roy highlighted that Obama's new budget projects that the law's subsidies to purchase health insurance on new exchanges would cost $111 billion more from 2012 through 2021 than projected a year ago. The revelation raises questions both about the reason for the change and how it would affect deficit-reduction estimates.
Roy mentions a number of possible reasons. One potential factor I'd flag is the detioration of White House economic projections compared with a year ago. Higher than expected unemployment means more people are likely to get their health insurance through a government exchange. As I reported last month, at a hearing before the House Budget Committee:
Rep. John Campbell, R-Calif., asked (Congressional Budget Office director Doug Elmendorf) out the cost estimates for Medicaid spending and health insurance exchange subsidies would be effected now that CBO’s long-term unemployment forecast has deteriorated. Campbell noted that at the time of its original estimate, CBO was expecting an unemployment rate of 4.9 percent in 2014, but now that’s projected to be 8.7 percent.
“That piece alone would raise the cost of the Affordable Care Act,” Elmendorf said, referring to the formal name for the legislation. “I don’t know by how much.”
And here's how the employment outlook has worsened in the past year, according to the White House:
This doesn't explain all of it, but it could very well be a factor.
As to the effect of deficits, it's hard to pin down, because the White House is relying on different assumptions and there are a lot of moving parts. But just to give an idea, in its most recent estimate in March of last year, the CBO said Obamacare would reduce deficits by $210 billion over this same 10 year period. But those estimates assumed a surplus of $86 billion from the CLASS Act, a program that created the short-term appearance of deficit reduction because it collected five years of premiums before paying out any benefits. It has since been suspended as "unworkable" by the administration. Take away that surplus and add the $111 billion in extra costs, and you end up with just $13 billion in deficit reduction.
We'll have a better sense of the cost when CBO releases its updated estimates, expected sometime later this month.
