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How much does Obamacare actually cost?

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Beltway Confidential,Opinion,Philip Klein,Barack Obama,Obamacare,Health Care,CBO

It's a question that has been at the heart of the health care debate for the past five years, and one that has been the source of plenty of confusion and misinformation: How much does Obamacare actually cost?

Over at the newly launched, Sarah Kliff has a piece attempting to offer an easy explanation of President Obama's health care law. Kliff is always worth reading on health care policy, but when describing the cost of Obamacare, she writes, “Expanding health coverage to millions of Americans is expensive; it will cost more than $1 trillion over the next decade.” In reality, the Congressional Budget Office estimated this February that the cost would be slightly more than $2 trillion.

It’s important to keep in mind that there are several categories that have been generally cited as representing the cost of Obamacare: the gross cost, the net cost and the deficit effect.

When CBO analysts most recently looked at the gross cost of expanding Medicaid and giving subsidies to individuals to purchase insurance through the new exchanges -- the bulk of the law's spending -- they came up with slightly more than $2 trillion for 2015 through 2024.

After deducting some offsets from the law — such as penalty payments from employers and individuals due to insurance mandates — CBO estimated the net cost at nearly $1.5 trillion.

The CBO hasn't done a standalone deficit analysis on Obamacare since 2012, but at that time, its analysts estimated the law would reduce deficits by $109 billion, once all tax increases, cuts to Medicare and other savings are taken into account.

When referring to the “cost” of Obamacare, the fair thing to do is cite the $2 trillion figure — and no, that isn’t just because it’s a higher number. The gross figure represents how much the federal government will have to spend on expanding coverage through Obamacare, at least according to the CBO. If the government weren’t spending $2 trillion on insurance coverage, that’s money that could be going to reducing the deficit, spending more on infrastructure or a host of other theoretical policies.

It's also important to remember that the "gross cost of coverage provisions" estimate was the most-widely cited number back when the comparable figure was $938 billion at the time of the law's passage. That was the number used by the New York Times, Time, the Associated Press, USA Today and, yes, Vox editor Ezra Klein. It also was in line with Obama's previous pledge that the law would cost “around $900 billion.” The CBO figure for net cost at the time -- $788 billion -- was barely referenced in discussions of the legislation.

While on the subject, it’s worth clarifying that the main reason why the gross cost headline number has ballooned from $938 billion to $2 trillion is that each estimate is looking at a different time period. The original estimate was for the years 2010 through 2019, but that understated the true cost, because the major spending provisions didn’t go into effect until 2014.

To summarize, I think the fairest formulation on this matter is to say that expanding insurance coverage through Obamacare will cost $2 trillion over the next decade, according to the CBO, which is more than offset by a combination of tax increases and cuts to projected spending (with most cuts coming from Medicare).

Some caveats are that the CBO hasn’t updated its deficit reduction number since 2012; the existing estimates assume that all of the Medicare cuts and tax increases remain in effect; and the $2 trillion number represents the cost of expanding coverage, which is by far the most expensive part of Obamacare, but does not represent 100 percent of the costs. There are a lot of moving parts in the law — it expands prescription drug coverage under Medicare, for instance, while making other cuts to the program — but the CBO hasn’t consistently spelled out its fiscal projections for each individual item.

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