The economist that Republicans handpicked to run the Congressional Budget Office just told Republicans that one of their favorite arguments about Obamacare is wrong.
According to a report the CBO released Friday, repealing the Affordable Care Act wouldn't reduce the deficit, as Republicans have long claimed. It would increase the deficit, by at least $137 billion over 10 years and maybe a lot more than that -- with the effects getting bigger over time.
Of course, that’s in addition to the effect repeal would have on the number of Americans without health insurance. The CBO says the ranks of the uninsured would increase by 19 million people next year.
The agency's assessments matter because the CBO is Washington’s unofficial referee on policymaking. Before passing a law, Congress looks to the CBO and its staff of well-respected, nonpartisan economists to predict how much money a proposal will bring into the federal Treasury and how much it will force the government to pay out. Members of Congress also depend on CBO estimates to show them how proposals to alter health care policy will affect the number of Americans who have health insurance, what prices these people will pay for their coverage, and so on.
But the CBO's reputation for budgetary honesty doesn't make it immune from political controversy.
For most of the last few years, the agency has been under the direction of Douglas Elmendorf -- an economist who, at the CBO, used widely accepted, more traditional methods of predicting the impact of federal laws. While Elmendorf had served previously in the Clinton administration, he was not easy on the Democrats when he got to the CBO. On the contrary, during 2009 and 2010, his skeptical take on early proposals to reduce health care costs caused Democrats plenty of grief as they were crafting what became the Affordable Care Act. They ultimately responded by introducing more aggressive and politically volatile measures, such as steeper cuts to what Medicare pays hospitals and a “Cadillac tax” on the most generous employer-sponsored health insurance plans. Elmendorf eventually certified that, with these additional reforms in place, the health care law would reduce the deficit -- first by a little, then by a lot.
To say Republicans were unhappy about this assessment would be a gross understatement. They talked (and still talk) of the health care law as a “budget buster,” refusing to acknowledge the CBO’s verdict or, at the very least, questioning the assumptions behind it. Although Republican leaders frequently praised Elmendorf -- U.S. Sen. John Cornyn (Texas) once said, “God bless Dr. Doug Elmendorf for his integrity and his commitment to telling the truth” --
this year they opted to replace him with Keith Hall, a more conservative economist who had served on the Council of Economic Advisers in the George W. Bush administration. At the same time, the House passed a rule requiring that the CBO use “dynamic scoring” -- a controversial method of projection that, conservatives say, better incorporates their thinking about how laws will affect the economy.
Hall’s appointment plus the directive to use dynamic scoring set off alarm bells in Washington, particularly among Democrats, although economists from both the left and center worried it would effectively rig the legislative process in favor of Republicans.
Assessments of the Affordable Care Act are one place dynamic scoring could make a big difference, because the health care law interacts with the economy in multiple ways. Among other things, economists say, the Affordable Care Act slightly reduces the size of the full-time workforce, primarily because people who might otherwise cling to jobs or put in longer hours just to get health insurance can now buy coverage through HealthCare.gov or one of the new state exchanges. (The effect is biggest among lower-income workers and older workers.) Fewer people in the workforce means lower economic output and less tax revenue. Many conservatives have said a full accounting of the law’s economic impact would show it really does increase the deficit -- and that, as a result, repeal would bring the deficit lower.
Friday’s CBO assessment incorporates such assumptions and, sure enough, it makes a huge difference in how the CBO evaluates the law. But even with these principles baked into the projections, the CBO’s best guess is that eliminating the Affordable Care Act would increase the deficit by $137 billion over 10 years. Under the more traditional CBO method -- in other words, without dynamic scoring -- repeal would swell the deficit by $353 billion over that period, or nearly three times as much, the CBO announced.
The CBO's main estimate includes another important assumption that changes the outcome substantially. In calculating how Congress would rescind the law’s Medicare cuts, the CBO assumed Congress would use a formula less favorable to hospitals. If Congress used a formula more favorable to hospitals, the CBO said, repeal would increase the deficit by an additional $160 billion over 10 years -- that is, on top of the higher deficits the CBO already expects.
And all of these numbers are just for the first 10 years. After that, the new CBO report says, a repeal's impact on the deficit would be larger.
So a fair summary of the report is that the CBO now believes repealing Obamacare would increase the deficit over the next decade by more than $100 billion and maybe a lot more, depending on whether it includes some assumptions that conservatives usually support. Repeal would have this effect while forcing people to work longer hours or find full-time jobs purely for the sake of getting health insurance. (Remember, that’s why the law reduces the labor supply.) At the same time, repeal would deprive many millions of Americans of the chance to get health insurance, thereby reducing a historic decline in the uninsured that has taken place since the law took full effect.
Peter Orszag, who preceded Elmendorf at the CBO and served as the Obama administration’s first budget director, told The Huffington Post that this new report is “an object lesson in being careful what you wish for. Those hoping that dynamic scoring would produce a much different answer and flip the sign [of deficit reduction] must be very disappointed. The ACA reduced the deficit, and repealing it would increase the deficit, regardless of whether macroeconomic feedback effects are included or not.”
The CBO is hardly infallible. Its estimates are just that -- rough guesses, albeit highly informed ones, about how policies will play out in the future. The debate about how to make projections, and what assumptions to use, is serious and generates honest disagreement even among some like-minded experts. But when an assessment by a Republican economist, using methods that Republicans prefer, shows that repealing the health care law would increase the deficit, that’s a stinging rebuke of Republican dogma on Obamacare -- though you’d never know it by listening to them. Here, for example, is how U.S. Sen. Mike Enzi (R-Wyo.) responded to the report on Friday:
“CBO has determined what many in Congress have known all along. This law acts as an anchor on our economy by dragging down employment and reducing labor force participation. As a result, the deficit reduction that the Democrats promised when it was enacted is substantially unclear. While CBO’s report notes that the deficit impact of repealing the law is highly uncertain, and could even reduce the deficit, it does show that repealing this law will boost nationwide employment and grow the economy.”
As it happens, Republicans earlier this year included special instructions in their budget resolution, exempting changes to the Affordable Care Act from the usual parliamentary rules for proposals that would increase the deficit. Apparently Republicans can ignore a CBO with a Republican director just as happily as they'd ignore one with a Democrat in charge.
Jeffrey Young contributed reporting.