About That CBO Report Claiming Obamacare’s Costs Are Down 20 Percent…

In the January 2015 Budget and Economic Outlook, the Congressional Budget Office (CBO) pronounced that Obamacare’s future costs will be one-fifth lower than had been originally estimated:

In March 2010, CBO and JCT projected that the provisions of the ACA related to health insurance coverage would cost the federal government $710 billion during fiscal years 2015 through 2019 (the last year of the 10-year projection period used in that estimate). The newest projections indicate that those provisions will cost $571 billion over that same period, a reduction of 20 percent (p. 129).

What explains this windfall?

Medicaid savings in the January 2015 projection are due to 10 percent to 15 percent reductions in costs per beneficiary. The same holds for the savings due to lower subsidies to health insurers in Obamacare exchanges. CBO notes that cost increases in private and government health plans have been significantly slower than anticipated in previous years, and assumes this will continue. Nobody can fully explain the slower rate of health spending in recent years, but consumer-driven health plans and the Great Recession explain much of it.

This invites a challenge to CBO’s long-term projections: CBO now projects real (inflation-adjusted) growth in Gross Domestic Product (GDP) of over two percent per annum though 2025, so it appears imprudent to expect health spending to continue to increase at a recessionary pace.

Looking further into the future, Obamacare’s spending explodes again. CBO estimates the average exchange subsidy per covered enrollee in 2015 will be $4,330 but will increase significantly to $7,710 in 2015 (p. 122). That is an increase of 78 percent in nominal terms. In real, inflation-adjusted terms it is an increase of 48 percent (using the CBO’s estimate of future Consumer Price Inflation). And 2025 is only ten years in the future! We have had Medicare for fifty years, and its future liabilities have long been out of control.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.