The cost of Obamacare can be very confusing, as estimates range from $1.76 trillion to a net savings of $143 billion over the next decade. And then there's President Obama's initial claim that the Patient Protection and Affordable Care Act (ACA) would cost $940 billion. Who's right? They all are. Here's why.
Initial $940 Billion Cost EstimateWhen the ACA was signed on March 23, 2010, President Obama said it would cost $940 billion over its first ten years (FY 2010 - FY 2019). This was based on the non-partisan Congressional Budget Office analysis completed March 18, 2010. The CBO added up the net costs of both the laws that implemented Obamacare: the Patient Protection and Affordable Care Act (Public Law 111-148), and the Health Care and Education Reconciliation Act (Public Law 111-152), which created some offsetting revenues.
A few days later the CBO lowered its cost estimate to $938 billion based on a more detailed analysis. The estimate came from five cost areas that were not directly offset by revenues:
- Expanding Medicaid and CHIP - $434 billion.
- Tax credits to small businesses who provide insurance - $40 billion.
- Setting up the health insurance exchanges - $358 billion.
- Tax credits for those who can't afford insurance - $106 billion.
2012 $1.76 Trillion EstimateIn March 2012, the CBO updated its Obamacare cost estimate to $1.76 trillion. The Senate Budget Committee Minority Office reported that this was three times more than the CBO's original estimate of $940 billion. Did the cost of Obamacare spiral out of control? Did Obamacare proponents deliberately mislead us? No and no.
First, the first CBO estimate was from FY 2010 - FY 2019, a 10-year span. The updated CBO estimate started two years later, from FY 2012 - FY 2023, which is an 11-year span. The most expensive provisions of Obamacare don't take effect until 2014, when mandatory health insurance coverage kicks in. The biggest cost is expanding Medicaid and CHIP to include more low-income people. Here's the breakout:
- Expanding Medicaid and CHIP - $931 billion.
- Small business tax credits - $23 billion.
- Setting up exchanges and providing tax credits for those who can't afford insurance (combined) - $808 billion.
Savings of $143 BillionSo, if the CBO said the costs of Obamacare were anywhere from $940 billion to $1.76 trillion, how could it also say it reduced the budget deficit by $143 billion? That's because the ACA legislation also passed new taxes and budget reductions in other areas. Read more about the Obamacare taxes.
Let's go back to the March 20 2010 CBO report. Here's a summary of the new taxes imposed by Obamacare, which would bring in an additional $567 billion in revenue:
- Hospital Insurance Tax - $212 billion.
- Non-compliance tax - $64 billion.
- Cadillac Health Insurance Tax - $32 billion.
- Medical Device and Insurers Tax - $107 billion.
- Raising medical deduction limit to 10% - $104 billion.
- Reduce drug subsidies to wealthy - $87 billion.
- Reduce Hospital DSH Payments - $37 billion.
- Reduce Medicare Payments - $197 billion.
- Reduce Medicare Advantage Payments - $135 billion.
- Education - $20 billion.
When the costs of $940 billion are deducted, the deficit will be reduced by $104 billion. Where did the CBO get the other $40 billion in savings? From a plan for the Federal government to offer long-term care insurance, which the CBO thought would lower Medicaid costs by $40 billion. Unfortunately, it soon became obvious that long-term care was much more expensive, and this program was scrapped. (Source: CBO March 20 Report) Article updated October 1, 2013