Obamacare and deficits: Reality check

October 28, 2013: 7:42 AM ET
obamacare deficit reduction
The fight du jour over Obamacare is the troubled rollout of healthcare.gov. But the more enduring fight will be about the law's potential effect on federal coffers.
NEW YORK (CNNMoney)

Is Obamacare a blessing for the federal budget? Or a burden?

Democrats promise trillions in savings. Republicans swear the law will bankrupt the country.

Alright, whatever. Here's what nonpartisan experts have said.

Will it reduce deficits or not? When the Affordable Care Act passed in March 2010, the nonpartisan Congressional Budget Office estimated that it would reduce deficits by more than $100 billion in the first decade, and by considerably more in the second decade -- by half a percent of economic growth. A half percent of GDP over a decade could mean reducing deficits by more than $1 trillion.

So, what's the problem? The CBO's estimate assumes that the law would be adhered to exactly as written.

Except that almost never happens with big legislation.

The CBO itself noted that the ACA would "put into effect a number of policies that might be difficult to sustain over a long period of time."

A number of changes have already been made, and more are being proposed -- some of which could diminish the law's deficit-reduction potential.

For instance, there's a push to repeal Obamacare's tax on medical devices. The tax is expected to raise about $30 billion over the next decade.

And there is concern that Congress could have a hard time adhering to various cost containment provisions in the law, said Joshua Gordon, policy director of the Concord Coalition, a deficit watchdog group.

If lawmakers keep messing with the law, then what? It depends on what they do -- but they could end up adding to deficits.

What if, for instance, they phase out key provisions intended to restrain spending growth in Medicare and don't implement a policy to slow the growth of health insurance subsidies?

Related: Is Obamacare slowing healthcare spending?

The Government Accountability Office did a long-range simulation that included these and other assumptions about the broader budget.

In such a scenario, the GAO found that deficits would go up 0.7% of GDP over the next 75 years. That would be due in large part to increased spending on Medicaid, the Children's Health Insurance Program and subsidies offered on the health insurance exchanges.

When will we know who's right? It may be awhile. Obamacare is a very complex law with lots of moving parts that phase in (and out) over time.

Already, growth in national health spending -- of which federal spending is a big part -- has fallen to a record low rate. The CBO and economists think part of that slowing is attributable directly or indirectly to the ACA, but it's unclear how much. And the growth rate is expected to rise in the next few years as more people become insured under Obamacare.

It also remains to be seen whether the new health insurance exchanges will draw a diverse pool of enrollees and generate enough competition to fulfill the law's promise of providing affordable health care for most Americans.

Clinic signs up zero Obamacare patients

What makes Gordon optimistic that Obamacare can help improve the country's fiscal outlook long-term are the changes that hospitals, doctors and insurance companies are already making in attempts to slow cost growth.

"Underneath this surface fight over Obamacare, there's a huge amount of change and consensus on different ways to slow down health care costs and shift to a value-based health care system," Gordon said.

So what stokes his pessimism? The prospect that Congress could muck things up.

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