Obamacare: Obama Lied, Our Budget Died

Back on September 9, 2009, President Obama called together a joint session of Congress to listen to him talk about his Obamacare plan. This large-scale PR effort was based on the notion that Obamacare wouldn’t just keep deficits neutral, it would actually cut them. Here’s what Obama said:

And here’s what you need to know.  First, I will not sign a plan that adds one dime to our deficits — either now or in the future.  (Applause.)  I will not sign it if it adds one dime to the deficit, now or in the future, period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize …. This plan will not add to our deficit.

Why take on health care in the middle of an economic crisis? Obama answered:

Put simply, our health care problem is our deficit problem. Nothing else even comes close. Nothing else.

This was nonsense when he spoke it. What private citizens spend on health care does not contribute to the national deficit; what the government does contributes to our national deficit. Reform of Medicare and Medicaid was and is necessary, of course, but Obamacare was never designed to cut deficits – it was designed to grow them.

The Washington Post reports today that Obamacare will add over $340 billion to our deficit over the next decade. The report on which the Post article is based is written by Charles Blahous, a “conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security.”

Blahous’ study shows that the savings supposedly generated by Obamacare flow into the Medicare hospitalization trust fund – which means that the money isn’t saved, it’s just used to pay more benefits to those who already have insurance. Opponents of the study say that Blahous’ standards are different from “bipartisan budget rules” used to measure deficit-reduction issues. But so what? He’s either correct in his analysis or he’s not. And in this case, he’s obviously correct – typical budget rules allow for “double counting” of Medicare savings. The Congressional Budget Office admits as much.

Jonathan Chait, among others, has argued that the study itself is flawed. What’s his evidence? He pulls the Koch card, stating that Blahous works for the Mercatus Center, and the Kochs give money to Mercatus, and therefore Blahous must be their sock puppet … or something.

His substantive argument is a bit better – he says that Blahous’ study is bogus because it assumes that Medicare will automatically reduce payments if its trust fund isn’t funded, and that it won’t if the funding is available. Therefore, says the Blahous study, if the trust fund is funded via Obamacare, new deficits will be created, because cuts won’t take place; the money that would be headed to the trust fund can’t be used to fund other stuff. Chait calls this assumption “completely bizarre.”

But why is that assumption bizarre? It’s how the law currently operates, as the CBO recognizes. Paul Krugman, who agrees with Chait, contends that’s not good enough – we should figure that Medicare will be funded from somewhere else. But where is that money supposed to come from? Wait, wouldn’t that raise the deficit, too?

Chait’s argument – and Krugman’s by extension – is empty. It says we routinely double count cash, so let’s continue double-counting cash. As Blahous explains:

Here’s a simple way to think of it: under law Medicare is permitted to spend any proceeds of savings in the Medicare HI program. If we cut $1 from Medicare HI spending in the near term, then an additional $1 is credited to the HI Trust Fund as a result. The Trust Fund thus lasts longer and its spending authority is expanded, permitting it to spend another $1 in a later year …. A core fiscal problem with the ACA is that the same $1 in Medicare savings that expands Medicare’s future spending authority by $1 is also assumed to finance the creation of a large new federal health program. Taken together, these two expansions of spending authorities — the new health program and Medicare’s solvency extension — far exceed the cost-savings in the legislation.

Obama promised not to raise deficits. Anybody with a modicum of common sense could see that he was clearly going to raise deficits by somehow creating a new right for which Obama had no ability to pay under current law.