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Sunday, May 19, 2013

CBO – US Economy Set to Soar On Obamacare?

 

The Congressional Budget Office put conservative economic thinkers on their ass this week. In this Report (pdf), the CBO concluded that the US budget deficit is about to collapse to insignificance. The improvement in the deficit outlook is so large that it has lead liberal thinkers to start calling for more stimulus spending. If it were not for the three scandals brewing for Obama (Benghazigate, IRSgate and APgate) I think there would be calls to spend some more government money.

The CBO assessment of the deficit profile relies on every trick in the book. The assumption is that all of the variables that weigh on the deficit will be improving over the next few years. Tax collections will remain at historically high levels. Government spending will decline as the economy improves. Fannie Mae and Freddie Mac will be kicking $95Bn into the coffers. Social Security will cost less than previously thought, the same favorable result is assumed for both Medicare and Medicaid. And of course, there will be no wars or military incursions that have to be paid for. But, by far, the biggest driver of the reduced deficits will come from a robust economic recovery that is set to occur. This is the CBO forecast for top line GDP growth:

 

cbogdp

 

Wow! 6.5% growth is coming our way! Don’t worry at all about the endless recession in Europe. Don’t consider the rapid slowdown in China either. And please don’t worry about  the fact that the Fed is going to be taking its foot off the gas over the next 24 months – all that won’t make any difference. The USA is set for a spurt of growth not seen for years.

What could the CBO be hanging its hat on when making this bold predictions of rapid economic expansion? I wonder if the CBO is relying on Obamacare to provide the big boost. This is the only significant economic development on the horizon. It will change everything when it’s finally implemented. It will result in 32 odd million more people having access to healthcare. And when those people do have health insurance, they will be going to Doctors, getting treatments and medicines. And with those visits and related spending, the economy will get a lift – at least that is the thinking.

 

There is some evidence that Obamacare is going to ratchet up health spending. The New England Journal of Medicine  has done a study on the results of an experiment in Oregon. Some 6,000 people were given access to Medicaid for two years. There was a control group of another 5,000 people who did not get access to health insurance. What did those who won the lottery for the free health benefits do? They went to Doctors of course. The study showed that those with insurance were 2Xs more likely to visit a doctor, and would take twice as many prescription drugs. Obamacare will result in an increase in medical diagnostics; the number of MRI’s, X-rays, blood test etc. will increase markedly when free health insurance is available.  The cost of all these new medical services will add to GDP, and increase employment in healthcare.

The Oregon study showed that healthcare spending rose by $2,750 for those who had access to Medicaid versus the control group. If these results are applied to all of the 32m people who have no insurance today, it would result in an increase in spending of $90Bn – that comes to 5.5% of GDP. While not all of that spending is going to happen, its pretty clear that Obamacare is going to ramp up the economy by a meaningful amount – a 2% net increase in economic activity is possible.

 

To the extent that Obamacare is measured as a jobs program it may be considered a “success”. More medical spending will be the result. The larger question of what it will do for the health profile of Americans is not at all a sure thing. I was surprised by the conclusions drawn by the Oregon study:

 

This randomized, controlled study showed that Medicaid coverage generated no significant improvements in measured physical health outcomes in the first two years

 

The reason why overall health results were not improved for those with insurance was interesting. People who have healthcare available to them often adopt risky behavior. For example, those who had health insurance in the Oregon study were much much more likely to smoke. (10% increase over those that did not have health insurance) This conclusion confirms what has been observed in other situations. When people have seat belts, they think they are safe, so they drive faster. It appears that the same holds true on health related matters.

The pessimist in me says that the roll-out of Obamacare is going to be anything but a success. The state insurance exchanges will not be up and running on time. Getting those 32m people to sign up for Medicaid will not happen at the pace that is currently anticipated.  Obamacare will not be the economic stimulus that is hoped for, it won’t improve the nations health levels by much, and it’s going to cost an absolute bundle in the form of increased taxes.  My guess is that in 2-3 years most folks in the country are going to hate Obamacare, but it it will be impossible to get rid of by then.

 

BO

Comments

  1. Health before wealth is much more important. Americas healthcare was Stone Age and Obama finally saw that. Long term it is good for the economy.

    • Wow Anon it must be hard to see with your head so far up your butt. IF American health care was stoneage before Obamacare why did everyone in the world clamor to come here for care? Because it was available because of the market. With Obamacare, prices must soar because of demand and lack of supply of Drs.
      Obamacare is a proxy for Medicare. Ever try to find a Dr as a new elderly patient, that would take Medicare? Good luck. Not going to happen. Eventually Drs will work for cash or private insurance. Those showing the apparatchik Obamacare card will go to the back of the line, and stay there, just like Canada, Europe and everywhere else that has socialized medicine.
      To replace physicians leaving the field, Obama will use Veterinarians, Nurse Practitioners, and on line trained Dr Mengalas.
      Liberal bias on this is so far off the deep end, and lacks so much credibility, that only children would take it seriously, so far into Neverneverland is Obamacare.

  2. It is good to see some optimists, but…

    This problem will not work. We have a huge healthcare issue passed by congress and signed by the president. The largest expansion to support the healthcare legislation is in the IRS. What is wrong with this picture???

    There is no public option to control the insurance companies. Pharmaceuticals will still be over priced. The problems in healthcare are almost endless.

    • You have one point correct: The problems in “healthcare” are almost endless. Unfortunately, your argument dissolves at the end of that sentence.

      We do NOT have a “healthcare” problem in this country; instead, we have a governmental interference problem with paying for healthcare. The only proper solution is the one that the Social Democrats never considered: Get the government as far away from any health-related decisions as possible.

  3. I am only surprised the American public is not taking to the streets, over the fact the politicians have the best health care, for life and we the public are fighting over Obamacare. Same, same for SS but I digress.

  4. Bruce since when have you let writers for SNL (Anon) post here ?

  5. Bruce,

    I expect that mention of Krugman will bring out various haters and unrelated comments. In a recent blog post he mentioned the Oregon study but with different conclusions attached to it. No surprise since you and he differ on many things. I wonder if you would address this as his post had slightly more detail about the study – but neither of you goes into proper depth for the conclusions reached.

    Thank you.

  6. celebrate uniformity says:

    Money printing caused the market to go up, they schedule a cap gains tax rate increase, and lo and behold, a few more peeps took their gains before the new rates. Who woulda thunk?

  7. enjoy the decline says:

    “CBO – US Economy Set to Soar On Obamacare?”

    like thelma & louise? sure!

  8. …and who’s going to pay for all this wonderful medical care? The middle class taxpayers of course! Get ready for your colonoscopy :-)

  9. So let me get this right…….. More health care spending = more GDP, ok, get that bit. But is this ‘kind’ of GDP good for the economy? If so, it seems that the more sick people there are (not working or being productive) the more Healthcare infrastructure you need to support them (keeping those in a job I agree).

    Perhaps the US needs a programme which takes everyone currently on foodstamps, gives them a thorough diagnosis (bound to find something which needs treating) and then spends $ on making them well. Bingo!

    We had the great idea here in the UK of training therapists to help unemployed people with depression.

    Another Gov.com winner!

  10. Love the image! I’d like to address this concept, from the main article:
    “It will result in 32 odd million more people having access to healthcare.”

    And there were other references inferring that people who don’t have insurance don’t have access to healthcare. Completely UNTRUE. I don’t understand how that idea has taken hold….I heard my own Mother say it. Doc’s, clinics, hospitals have always taken cash (or equiv) and most happily do so.

    And I imagine everyone reading this blog hasn’t had reason to go search for a local clinic for diagnosis/treatment so let me advise…..they are everywhere! You haven’t looked or noticed. I haven’t confirmed this but I’ll bet most appointments are paid for in cash or equiv in those places.

    In fact, I know someone who volunteers at a clinic in NC where the treatments are FREE (not a good idea). Doc’s and nurses donate their time, pharma donates the drugs and charitable donations make up the rest.
    Ahem, and my friend did mention with chagrin once that there were some quite nice looking cars and trucks in the parking lot. Most of the clientele was Hispanic.

    A quick search produced this: http://www.thefiscaltimes.com/Articles/2010/05/03/Free-Clinics-Lifeline-for-America.aspx#page1

    My bottomline: we’ve got to stop perpetuating the idea that unless you have insurance, you can’t get treated. That’s never been the case.

  11. do you mean 0.5% GDP?

  12. Another great piece by you

  13. I can’t see it how it will be Obamacare, because the bulk of Obamacare’s expansion of coverage is thru Medicaid and the increase in Medicaid would show up in more federal spending, but the deficit is actually decreasing so that can’t be the case. Really, I don’t know where this comes from. Would be interesting to check Fed forecasts.

  14. You can read CBO’s explanation of their forecast at page 46 of this link:

    http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf

    Basically, they say, things will get better. Nothing more specific than that.

  15. I see two huge problems with this analysis. The first is that like most liberal analyses it only looks at one side of the equation: in this case the spending of tax revenues on government managed healthcare. Just like stimulus spending there are some parts of the economy that benefit from this stimulus. But the other side of the equation is those tax revenues are taken from other areas in the economy. When people spend and invest their own money they tend to do so with a great deal of care such that the economic benefit of that money is maximized.

    It’s like with green energy. Whereas the government throws money away on misguided projects like Solyndra in order to line the pockets of cronies, if the taxpayers had been able to spend the money they would have, for example, invested the money where careful analysis showed a company was a lot more likely to not go bankrupt, return a profit, and add jobs to the economy all without taxes. People are a lot more careful with their hard earned money than someone who is given (or in the case of the government takes) that money.

    The second major problem with this analysis is that despite propaganda virtually everyone already has had access to healthcare through such things as emergency rooms, county subsidized programs, and charities. So in the Oregon study when people spent the new “free” insurance money on healthcare, they stop using emergency rooms, county programs and charities for those treatments. The gain in one area of healthcare spending is offset in large part by the loss of spending in other areas.