The Congressional Budget Office (CBO) came out with their 2014-2024 Budget Outlook today. Although the entire document makes for a good read, I was most interested in the findings surrounding the Affordable Care Act (ACA), or what is more accurately labeled as Obamacare. I know there are those who like to think of Obamacare as the greatest innovation in the American health care industry, and would like to claim that it provides more accessible and affordable healthcare, although that is just another broken promise amongst broken Obamacare promises. For proponents, the price tag is worth the effort, which is why they are to look at the report as good news. However, when looking at the CBO report, I can only reaffirm what I can describe is my animus towards a further governmental intervention into an essential sector of the economy. What did the CBO report that I found perturbing?
For one, there is an issue with cost projections. Obama promised that Obamacare would not add a dime to our deficits, and also promised that Obamacare would not cost over $900B. Medicaid spending is expected to accelerate in 2014 because of the ACA (p. 13). Assuming no changes are made, the insurance exchanges are expected to increase spending by $18B this year alone (ibid). Spending for the combination of Medicaid and other health care programs is going to double, "largely because the ACA is expanding eligibility for Medicaid and providing subsidies for health insurance purchased through exchanges (p. 57)." Because of the ACA (those are the CBO's words, not mine), the percent of GDP that is to be spent on healthcare will increase from 5.1 percent of the GDP to 6.1 percent by 2024 (p. 16). What is the current projected grand total of Obamacare? $1.487T (Table B-1), which is nearly $600B more than he had promised.
Aside from cost, there is an issue with the labor participation rate, which has an effect on the employment rate. One of the provisions in Obamacare is to mandate that employers with over fifty employees have to either provide health insurance or pay a fine. Intuitively speaking, providing healthcare to employees, much like one's wage (see minimum wage argument), is a cost of labor. If the cost of each labor unit increases enough, the employer will be incentivized to reduce costs elsewhere, and that would include decreasing the amount of workers (p. 124). There were those who thought that the idea that Obamacare would cause higher unemployment was hogwash. Truth be told, this was one of those "wait and see" moments because we were waiting to have [preliminary] numbers come in. We've waited, and now what we're seeing isn't pretty. The ACA will further depress the labor force participation rate than the retiring Baby Boomers (p. 38), which means that the laws surrounding the ACA create a negative effect on employment. How much of an effect will that be? The CBO estimates that from 2017 to 2024 (p. 117), the number of hours worked will be reduced by 1.5-2 percent as a result of the ACA. Back in 2011, the CBO initially projected that the ACA would only cause 800,000 unemployed as a result of this bill (CBO, 2011, p. 31). However, the new projections put the full-time equivalent (FTE) decrease at 2.5 million by 2024 (CBO, 2014, p. 117), which is triple the initial estimation! Furthermore, the CBO estimates a reduction of roughly one percent in aggregate labor compensation over the period of 2017-2024 (ibid). Although employment is supposed to increase from 2017 to 2024, thanks to Obamacare, it will increase less than it would have otherwise.
There is also the matter of the number of the uninsured in this country. Obama promised universal healthcare, but once again, the CBO is still projecting that 31 million will be uninsured (Table B-2), which is a long ways away from the goal. Furthermore, Obama won't be able to keep his promise of "if you like your healthcare plan, you can keep it" because an estimated 12 million will lose their insurance because of Obamacare (ibid). And more bad news for Obamacare: there will be 2 million less insured this year because of implementation issues (Table B-4).
For those who were worried about taxes beforehand, you certainly have a right to be. One tax implemented is an excise tax on healthcare insurers (p. 88). The CBO is projecting a whole slew of other excise taxes [that will amount to $130B], three quarters of which will come from the ACA (ibid). The fines under Obamacare, which are not being called "taxes," even in spite of the Supreme Court ruling the individual mandate's justification under the Taxation Clause, will total to $27B in 2014 in rise substantially because of the ACA (p. 89). It's no surprise here that the Obamacare taxes will distort work incentives or create other economic distortions (p. 118, 122). Also, you have to love how the CBO calls the insurance subsidies an implicit tax on work (p. 120).
The only silver lining is that risk corridor program is supposed to save money (p. 114-115). Risk corridors notwithstanding, the numbers do not look promising. Granted, the CBO keeps emphasizing the uncertainty of its projections (p. 22) because a lot needs to unfold before we know the full effects of Obamacare. I agree: we're going to have to wait and see. Knowing that these projections have a propensity for getting worse as time passes, I can only surmise that Obamacare is going to have a larger, negative impact on the economy than any of us can foresee.