Insurance Blog

Finance Blogs » Insurance Blog » CBO: ‘Obamacare’ cuts deficit

CBO: ‘Obamacare’ cuts deficit

By Jay MacDonald ·
Tuesday, July 31, 2012
Posted: 10 am ET

You may have seen a few election-year TV ads that claim President Obama's landmark health care reform, aka "Obamacare," will add "trillions" to the federal deficit.

Turns out they're off by, well, trillions.

The latest estimates from the nonpartisan Congressional Budget Office indicate the Affordable Care Act will actually cut rather than increase the national debt over the next decade.

In its first budget projections since the Supreme Court upheld most of the health care reform law last month, the CBO adjusted its cost estimate down slightly to reflect the one provision of the ACA that the court struck down: the requirement that states expand Medicare to provide health insurance to lower-income residents.

Since states now have the option to accept or reject the government's offer to pay 100 percent of the initial cost to expand Medicaid, the CBO estimates that 3 million fewer Americans than previously expected will gain health insurance coverage under health care reform.

As a result, taxpayers will save about $84 billion between 2012 and 2022, when an additional 30 million Americans will have been added to the health insurance pool.

While the CBO offered no exact estimate on how much health care reform will shrink the federal deficit, it said that the law's spending cuts and tax increases would more than compensate for the federal outlay to cover the uninsured.

As for those efforts in Congress to repeal the Affordable Care Act? The CBO estimates they would boost the federal deficit by $109 billion between 2013 and 2022.

Follow me on Twitter.

Subscribe to Bankrate newsletters today!

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
August 29, 2012 at 6:04 pm

Here's the problem with your view on this topic. I don't know if it is intentional or not, but your scenerio and numbers and hand picked to only show a negative impact and not looking at the entire picture. First of all, who has 15 employees making the exact same wage? Do you have a business full of managers with no laborers? Secondly, how many families of four live on one person's income? Not very many I don't believe, so you should figure in two people paying into the system which would dramatically change your figures. Third, it's pretty pathetic for a business owner who probably does little to none of the real labor that earns the revenue for that company to give your employees the shaft and force them to find their own insurance when if you would simply man up and be responsible for your employees that do the actual labor that generates the revenue that you enjoy so much. That way you can do your part in saving all americans and the government money by simply giving up a little of the revenue that you didn't truly earn much of yourself. Remember, when the boss takes long vacations the store still runs and money is still made. If your employees don't show up for work you don't make squat. Next, you convienently forget that not every single person that will be paying premiums fits into your little 4 family box. There will be more single people paying premiums, most of which won't use except for maybe a yearly checkup which would only cost the government a couple of hundered dollars a year. That brings me to my next point, it's not just how much is paid into the system, it's also how much is being spent for actual care. There are plenty of people like myself who rarely have to go to the hospital for any type of treatment. I'm 35 years old and have only been to the hospital for care 4 times in my entire life, twice as an adult. All four times equal to less then a few thousand dollars spent in health care treatment. The two times as an adult have added up to less then $1000. If I had been paying $100/month since I was 18 that would be just over $20,000 meaning I have added a surplus of $19,000 to the system just on my own. Next you say that $1400/month is going to hurt, well, not if the people were responsible and saved their income tax refund for health care costs, which is the point of the tax credit, instead of blowing it on a vacation or a vehicle they didn't need.
The main point people that are biased against Obama will not admit to, is that, just as any business will tell you, it's all about volume. The more customers you have the less you have to charge for your product to make a profit. The same goes for health care coverage, the more people paying in the less they need to pay because only a very very small percentage of those paying in are acutally needing health care treatment.

Larry Lee
August 28, 2012 at 10:30 pm

First, ACA did not expand MEDICARE to cover low income citizens. ACA expanded MEDICAID. If they can't even get that right, what is the likelihood any of the rest is accurate? Second, if the difference between a figure on the positive side and a figure TRILLIONS of dollars on the negative side is simply a matter of some States refusing to cover a meager 3 million people that the CBO had projected would be covered, what ridiculous number does that figure out to per person? If a thing is unbelievable, it probably isn't true. Third, putting people under the umbrella of Medicaid doesn't mean they are costing anything. It's only if they actually require medical care that there is any cost. There is no insurance premium to pay to any insurance company. Thus, ACA becomes less costly because we have a great many states that prefer to save money by refusing medical care to their own citizens.

Larry Lee
August 28, 2012 at 10:00 pm

Allen l, let your adult son pay the difference. That's where the savings are. For him, the savings are in the amount between what he would have had to pay for a policy all his own and the amount to be paid with him on your policy instead. I don't think Obama promised you anything. Problem solved. Move along.

August 17, 2012 at 10:35 am

The thing is that CBO projections are ALWAYS off, especially long-term. They inevitably make assumptions that turns out not to hold. They assume that people will not change their behavior in response to changing laws, but of course they always do. The ACA doesn't pass the smell test, regardless of projections. It doesn't matter if it cuts the deficit, if premiums go up - and they will. With tens of millions more people on the insurance rolls, usage of medical services will increase radically. And there will be no commensurate increase in supply of medical personnel/services/goods. That means prices will rise ... for everyone. Even if the ACA does technically lower the deficit, it will COST us money, not save it.

car insurance
August 07, 2012 at 2:52 pm

I am too agree with you.. nice post thanks for sharing.
car insurance

allen l.
August 03, 2012 at 12:24 am

Thats right my son can stay on my health insurance up to twenty-six instead of twenty-one , I still have to pay for the premiums, I thought the taxpayers were going to pay for him, That is how Obama sold this so where is the savings Obie,? Just let me buy my own Family Health Insurance Across State Lines, so I can get a better rate and my son can pay for his own Health Insurance, It is a SCAM and the American Voter will kick this Socialist out of Office, along with Ried, Crazy Nancy and most demo. senators. Have a nice day.

John Lathers
August 02, 2012 at 10:55 am

Excellent evaluation! The scoring only leans positive because the
states opp. out. Look at Florida and its age average. This is a classic case of what is called "out of bandwith non linearities"!
In AUDIO "If I can't hear it nothings There"! Oh! look at the
BLACK SWANS!!! You get the picture.

August 02, 2012 at 10:30 am

Phil, you bring up an excellent and important point. I'm hoping Jay answers your query. I, too, am wondering about the same thing.

Phil Kumnick
August 01, 2012 at 10:51 pm


Have read your stuff for years and am a fan, though I would like to see your thoughts on a part of the ACA that I think the CBO and others have missed in terms of talking about the cost of the program and the potential unintended consequence of small employers (exempt from the penalty) dropping insurance.

Using the Kaiser Family Foundations subsidy calculator here is the element I think that is under reported. Lets say I am an employer with 15 employees, who average 80,000 in salary each and all have family coverage (16,000 a year each for family premiums) I pay for them and today I spend $240,000 in premiums, and each employee pays 2,500 a year for their part (less than 20%).

I decide to give each employee $4,000 and cancel my business policy, which results in $6,500 in purchasing power for each employee to buy insurance on the exchange. Under ACA they would have the "same" coverage that I provided. I get a raise in my bottom line of $180,000 and no more administering the plan.

Now each person goes to the exchange and purchases insurance. Kaiser says my 45 year old employee with a family of 4 making 84,000 a year will pay $7,980 of the $17,094 premium in a high cost region. The government will pay in the form of a tax credit $9,114.

With an 84,000 income and some idemization this familys federal tax bill is probably close to $8,000. They effectively now owe no tax and would get a refundable credit for $1,114 (plus a refund on the $8,000 in witholding). I believe the CBO is counting the $1,114 as "adding to the deficit" and not the $9,114. if 10,000,000 employees lost insurance for ever the government would pay $90,000,000,000 a year for insurance - if the premiums never rise that is more than a trillion over a decade added to the deficit

Now here is the hard part. The credit comes in the following year when you file your taxes. This means the family has to pay the monthly premiums on the $17,000 each month AND have their $8,000 withheld from their paycheck. Having that extra $1,400 per month going out the door is going to hurt from a cash flow perspective. It will hurt A LOT!

So this famliy may have to pay the penalty instead of buy healthcare. They would not have an option to buy a "cheaper" policy because this is the price for the "minimum" benfit. It would be much cheaper since they do not have the resources to pay $1,400 a month extra to purchase insurance. With the economy and unemployment higher than the 8.2% truly quoted, an accelerating trend of employers making healthcare someone elses issue to deal with, could bust the budget overnight.

No amount of taxes on the wealthy (or the middle class) would pay for this if employers decided that buying healthcare is now the employees responsibility just as it is to buy food and clothing.

I think this is a fatal flaw and someone (you) should look into the issue. Otherwise the ACA has a perverse incentive to drop coverage and in doing so across small businesses, hurt people in ways no one is talking about. Especially since the subsidy has a cliff at 400% of the poverty rate. If this family makes 93,699 they get the full subsidy ($8,193). If they make $93,700 they get ZERO. How many employees will tell their boss NOT to give them a raise? Might actually surpress wage growth too!

Bottom line when the report came out that 10% of employers were thinking of dropping insurance, this issue wasn't mentioned AND the ACA has flaws no one is even talking about. But in 2014 people will definately talk about it and by then it will have been too late to possibly fix it