Does Obamacare add to the U.S. debt or reduce it? The answers can be very confusing. Estimates ranged from saving $143 billion its first decade to adding $1.76 trillion to it. And then there's President Barack Obama's initial claim that the Patient Protection and Affordable Care Act (ACA) would increase the debt by $940 billion in its first 10 years. Who's right? They all are. Here's how.
How Obamacare Reduces the Debt by $143 Billion
The non-partisan Congressional Budget Office said that the ACA would reduce the debt by $143 billion. It added up the costs of both of the laws that implemented Obamacare. The Patient Protection and Affordable Care Act (Public Law 111-148) detailed the plan. The Health Care and Education Reconciliation Act (Public Law 111-152) passed new Obamacare taxes and budget reductions in other areas, which offset the cost of the plan.
The following five ACA taxes would have brought 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
Also, there were five areas where the ACA imposed a total of $477 billion in cost savings:
- Reduce drug subsidies to the wealthy - $87 billion
- Reduce hospital DSH payments - $37 billion
- Reduce Medicare payments - $197 billion
- Reduce Medicare Advantage payments - $135 billion
- Service education loans directly, which eliminated the cost of the private loan servicer, Sallie Mae - $20 billion
When the costs of $940 billion were deducted, the deficit would have been reduced by $104 billion. This would have been added back to the deficit if Trump had repealed and replaced Obamacare.
Where did the CBO get the other $40 billion in savings? From a plan for the federal government to offer long-term care insurance. The CBO thought would lower Medicaid costs by $40 billion. Unfortunately, it soon became apparent that long-term care was much more expensive. This program was scrapped.
Obama Said It Cost $940 Billion
When President Obama signed the ACA on March 23, 2010, he said it would cost $940 billion over its first 10 years (FY 2010 to FY 2019). The CBO made that estimate in its analysis completed March 18, 2010. A few days later the CBO lowered its cost projection 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
The CBO Said It Cost $1.76 Trillion
In March 2012, the CBO updated its Obamacare cost estimate to $1.76 trillion. The Senate Budget Committee Minority Office reported that this was two 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 original CBO estimate was for FY 2010 to FY 2019, a 10-year span. The updated CBO estimate was a for an 11-year span starting two years later, FY 2012 to FY 2021. The most expensive provisions of Obamacare didn't take effect until 2014. That's when mandatory health insurance coverage took effect. The biggest cost was 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
In Depth: How the ACA Works | The Truth About Obamacare | How Much Will It Cost Me? | Why Reform Healthcare, Anyway?
Editor's Note: Kimberly Amadeo is the author of "The Ultimate Obamacare Handbook."