Wednesday, July 25, 2012

CBO ON ACA – An Expensive Half-Loaf

The Congressional Budget Office produced two reports on Obama Care yesterday. The first (A – Link) did an analysis of what the cost would be if we just junked the Affordable Care Act (ACA). The second (B – Link) looked at the consequences to ACA as a result of the recent Supreme Court decision.


The House has recently put forward a bill to scrap almost all of ACA. This legislation is not going anywhere, it’s just a “show pony” for Republicans, so they can say they voted to repeal an unpopular law. The CBO is required to review all legislation, even if if it has not a ghost of a chance of passing

The CBO concluded that repeal would cost (increase deficit) by$109Bn over ten-years. This number assumes that government spending would actually decline by $890Bn, but the government would collect $1Trillion less in revenue.



When Justice Roberts made his now famous opinion that affirmed the constitutionality of ACA, he also made two important changes. He said that the government could not force a citizen to pay a penalty, but it could levy a tax, and he said that States could not be forced to provide Medicaid to those who did not have health care insurance.

The decision by Roberts does change the economics of ACA. The CBO concluded that 4 million people would not have access to health coverage as a result of the Medicaid “opt out” that the States now have. The reduction in the number of people covered translate to “savings” that amount to $84Bn over ten years.

Of course this is not really saving anyone a dime. ACA is going to cost a bundle. Post the Supremes decision, the CBO has concluded that ACA will cost a net of $1,168Bn over ten years. ACA will have expenses of 1,683Bn but will generate revenues of $514Bn to produce that net cost of $1.2 Trillion.

So we are screwed if we get rid of ACA, we are screwed 10Xs worse if ACA is kept alive.

What do we get for the $1.2Tn? The answer the politicians will tell you is that the country will finally have universal health coverage for everyone. But that is not true at all. ACA does widen the access to healthcare to millions of additional people, but it falls well short of the stated goals.

The CBO has concluded that as a result of ACA, the number of people today who do not have access to healthcare will fall from 53m to 30m over the next ten years. While the 46% reduction in uninsured is admirable, it still is a far cry away from what this law has been sold as. America will still have 10% of its population uninsured.


The CBO is only allowed to review “Current Law”. ACA must be reworked to reflect the ruling by Roberts that the government can’t charge a penalty for not participating in ACA. The Supremes determined that the penalties must be in the form of a tax for it to be legal.

At some point, lawmakers have to get together and rework the critical language and convert what was once a “penalty” into a tax. I suspect that this is going to be a big problem post the November election.

It’s very important to look at who will be paying these penalties/taxes. The numbers are huge. The following looks at who is going to be paying to make ACA a reality:

- $172Bn (15% of the total cost) is coming from those “penalties” that somehow are going to be converted into a tax. I think the country will see just a fraction of this amount actually collected.

- 10% of the cost ($111Bn) will come from people who have “Cadillac” insurance plans. So if you’re working for a company that has good health plan today, get ready to pay some extra bucks.

- Fully 20% ($231Bn) of the cost of ACA is coming from high-income earners. They will pay more income tax to subsidize the new law.

The bottom line on ACA is that it will increase the deficit by $1.3Tn, it results in tax increases of $514Bn and it covers less than half of the uninsured today. That is called success in Washington. Me? I call it a disaster.


  1. Wasn’t it obvious from the beginning that this would be a cost disaster? When had the government ever efficiently provided goods or services? If you give something away for free, people stop caring about costs and consume more of it. These projections substantially UNDERSTATE what would be the real costs of this program if it is allowed to continue. Fraud will become a new career path.

  2. While the ACA is a disaster its a disaster for a single reason that is completely different than what you state above.
    When the govt forces individuals to buy health insurance by manipulating the commerce clause, it can force individuals to buy anything using the same wretched logic.
    Further I dont owe anyone health care. I can barely afford it myself much less pay for anyone else.
    Would be very simple to reduce the costs of health. You either have insurance, pay cash or you dont get care and can die on the floor in the hospital. Without compassion? In a public sense, yes. In a macroeconomic sense? Its the only solution that is long term supportable.
    With the reduction in patients, the cost of care will by market forces, go down.

    Guns or butter. We can have both anymore. The evil politicians need to be forced to make a choice and live with the consequences.

    • The only way to reduce cost is to force people to account for cost in their decisions. Basic economics. If you give people care for free, they consume more and they shop based on quality, not cost. It’s a disaster because it further removes the consumer from the actual cost.

  3. Kind of a poorly-planned dog’s breakfast, isn’t it? Like any insurance scheme…

  4. Who lives and who dies? How much do healthy people pay to sick people?

    IMO the only two questions that matter. Been asking them for years.

  5. it’s obvious the health care issue is a huge can of worms. You can say, let those who don’t pay die on the hospital floor, but that’s unlikely to happen. So who pays? The hospital can’t stay in business if it runs a negative cash flow, so it has to keep its prices at a level where its cost are covered. Those who actually pay for services end up paying for those who don’t.

    I still say the whole “insurance” concept for health coverage is a flawed concept. Once a person has coverage he has absolutely no incentive to make decisions regarding costs. Yeah Doc, run this test and that test, and oh, give me that wrist brace even though I’ll never use it, because my insurance pays for it.

    Number two, though, is worse in my opinion. What value do the insurance companies add to health care? Where is the added value we get by having them in the loop. The insurance companies take 30 percent of what we spend on health care. 30 freaking percent. So the insurance company stock holders make money on health care, the CEO and other top execs get their mega-millions and we the consumers pay for that. I’d rather see all of my health care dollar (or at least 95 percent) go to the providers of that care, not to some fat cat CEO and the stock holders.

  6. Bruce,

    I don’t think Congress has to do anything in regards to the penalty/tax issue. I thought the court basically ruled the present language of the law to be equivalent of a tax, and, as a result, constitutional and ready for enforcement.

    • I agree. Justice Roberts said:
      “the shared responsibilitypayment may for constitutional purposes be considered a tax. The payment is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation.”

    • I disagree. There has to be “reconciliation” in the legislation.

      We shall see.

    • Let me expand.

      The Roberts decision regarding the opt out of Medicaid by the States does necessitate a legislative “fix”.

      This fix of an existing law would require only 51 Senate votes and a majority in the House. That is no small matter these days.

      When one element of this law comes up for renegotiation other elements will come up as well.

  7. It’s funny the governments of all the other industrialized countries that have “socialized” medicine run by their governments cost less per person that our system based on employment and based on rates for profit insurance companies. Some of these governments supply health care for half the price per person of our system. I’m tired of the excuse that our government can’t supply medicine for less than the insurance based system we have now. People fail to realize that for profit insurance companies really don’t have any incentive to lower health insurance. If the insurance companies are going to make a profit of say 15% over their costs, they would rather make 15% in one trillion dollars that on 500 billion dollars. This is why they don’t control costs and are constantly raising prices. This is a terrible system we have and though the Abama care might be a mess now,(it was designed to meet Republicans objections and thus kept getting watered down) give it 60 years like you gave the insurance companies and they will lower prices less that the insurance companies and we will have a better system than we have now. I’d rather have a government employee that is not pressured to deny coverage make a decision whether I get care than a employee at a for profit health insurance company make a decision when he is pressured to deny coverage and he gets paid more for denying coverage.

  8. Why is it that no one in a government like Canada , Europe or Australia want to give up the system they have for the American version? Because they cannot be bankrupted by the system like we can and they don’t have 10% who are not insured and it works. I don’t think Obamacare is even close to the answer until there is real reform it will just be another bandaid on a bleeding artery.

  9. Insurance companies charge what they want because there is very little actual competition between them because of outdated laws restricting where they can operate. Case in point: we just had an out-of-state home sale fall through because the buyer discovered that their medigap policy would not transfer from their current state to the new state. So now in addition to people being stuck where they are in an underwater mortgage, they are also stuck due to non-transferability of insurance! What a joke our once great nation has become.

    • FDR wrecked healthcare long ago says:

      Health insurance company profit margins are tiny — especially compared to other industries.

      Maybe you think they waste a lot of money on exorbitant payrolls, but only a fool would believe the folks who gave us the post office / Amtrak will be more efficient.

      Oh wait — maybe the GSA could pay for ObamaCare if they cut back on the Vegas parties?

      Government is just as corrupt as the private sector.

      We need to go back to the old way that worked before FDR socialized medicine. Pay out of pocket and don’t be a nation of hypochondriacs

  10. I and 3 of my partners met with Milliman, an actuarial firm, for our fourth meeting yesterday.
    In the next 2-3 weeks, we will have a product which we can show to insurers that will cut the cost of health insurance over 3-5 years by 60-80%.
    We do so through accumulating reserves in the insurance company which are available to the insured only for claims.
    The actual reserves are owned by the insurer, so if the insured exits, he gets nothing.
    Even all the growth on the reserves go to the insurer.
    For that trade-off, one gets a $25,000 paid-up policy in 3 years, and a $50,000 paid-up policy in 5 years for $400 a month, for an individual or a family.
    Don Levit

    • Don,
      It is innovations like yours in a free market with patients in control of their own healthcare that will solve the real problems. I wish you great success.

      And their are lots of ideas for helping those who really need it without huge unintended consequences.

    • Don – tell me more. I am an insurance producer and can be reached at dale@lifepointce.org.

    • I’m all for free market solutions. This ‘scheme’ accomplishes absolutely nothing. The key is:

      Force people to pay out of pocket so they actually care about medical costs. Insurance should be for catastrophes only.

  11. So…if I just happen to be an employer…with a Cadillac health plan…and I’m a high income earner?

    Looks like I REALLY GET SCREWED!

    BTW…I was already providing insurance for my employees..before this succubus was birthed.
    And I supported universal healthcare…single payer…the only thing that ever made sense.

    Once again the corporations and the Congress get together to kill off small business and feed on our corpses.


  12. The Difference Between Canada and the U.S. Health Care Systems (video 7:34)
      Sally C. Pipes understands and lived under Canada’s national health care system. She gives some personal stories and other facts.

    UK announces more health care rationing
    UK saves money with unofficial negligence
    UK hospitals intentionally delay treatment

    The Telegraph UK – National Health Service makes patients wait “to lower expectations”.
    === ===
    [edited]  At least 10 primary care trusts (PCTs) in Britian have told hospitals to increase the wait to treat patients, to save money.

    Some patients endured delays of 12-15 weeks after their doctors decided on surgery, although hospitals could have seen them sooner. The allowed maximum is 18 weeks.

    One manager said “short waiting times create more demand for treatment”. An NHS watchdog suggested that long wait times cause patients to remove themselves from the lists “either by dying or by paying for their own treatment”. PCTs have gamed the system, using maximum limits to delay treatment.
    === ===


  13. Expats are not obligated to buy health care insurance.

    People who vote with their feet are not full of hot air. The rest are.

  14. Mr. Krasting states that the net cost of the Patient Protection and Affordable Care Act is $1.2T. Later, he makes a jump and says, “The bottom line on ACA is that it will increase the deficit by $1.3Tn.” But I think the $1.2T is just the net cost of coverage. The CBO says that, due to other revenues and savings, the net impact of the health care act is a reduction of $210B. So this post is very misleading. The bottom line is: The health care act reduces the deficit.

    Net Budgetary Impact of the Legislation: PPACA and the Reconciliation Act also reduced the growth of Medicare’s payment rates for most services; imposed certain taxes on people with relatively high income; and made various other changes to the tax code, Medicare, Medicaid, and other programs. As you can see in the figure below, those provisions will reduce direct spending and increase revenues, providing an offset to the cost of the coverage provisions. According to our latest comprehensive estimate of the legislation, the net effect of changes in direct spending and revenues is a reduction in budget deficits of $210 billion over the 2012-2021period.

  15. Hi, Queenbee! Long time no see. BTW, the system in Canada has growing problems too. Doctor’s patient rolls are filled up and they are accepting no more new registrants. Filled with gov’t.-subsidized elderly, welfare recipients, status-protected native indians and low-income subsidizees, there isn’t room for many more. Anyone NOT registered with a family doctor and needing treatment quickly is openly told to appear at a hospital emergency room.

    Then there are lengthy waitlists, shortages of doctors in most rural areas or small towns, and two-tier medicine, with higher standards of care for those who can pay extra.

    Not a panacea by any means…perhaps the best answer would be the U.S. system without any government involvement at all and without any mandatory employer contributions so as to keep burdens light and cost-push pressure low…

    • The UK and Canada are coming out with a new marketing slogan:

      ‘The best care you’re not allowed to have.’

  16. Jim,MtnView,Ca,USA says:

    Still getting used to the new layout :)
    I like the commenting system upgrade, though.

    • Hi Jim, It took a while, but I finaly am my own .COM.

      And yes, I would like any comments from all about how it looks/works

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  1. […] away from what this law has been sold as. America will still have 10% of its population uninsured. More… One Big Asinine Mistake America! In a world full of pathetic liberal potholes, we need a leader […]