6 Takeaways from the CBO’s Latest Budget Report

The Congressional Budget Office
just released
a big new budget report
outlining its most up-to-date
expectations for the economy, the deficit, and Obamacare over the
next decade.

It’s the first major budget document from the office since the
launch of the health law’s exchanges last year, so there are plenty
of interesting new figures and projections. Here are six key
takeaways from the report:

1. Over the next decade, there will be millions fewer
full-time jobs because Obamacare creates disincentives to
work.
In 2024, the labor force will be smaller by about
2.5 million full-time equivalent jobs than it would have been in
the absence of the health law. This represents a significant
upwards revision; CBO had previously estimated that there would be
about 800,000 fewer full-time positions in 2021 because of the law.
As before, the expectation is that this reduction will stem largely
from a reduction in the labor supply; with Obamacare in place, CBO
expects that fewer people will choose to work in order to maintain
their health coverage. The effect is expected to be concentrated in
amongst part-time workers, for whom “the loss of [Obamacare’s
health insurance] subsidies upon returning to a job with health
insurance is an implicit tax on working.”

2. Fewer people are expected to gain insurance through
Obamacare as a result of the botched rollout of the
exchanges.
The CBO expects that 1 million fewer people
will enroll in Medicaid, and 1 million fewer will get coverage
through the exchanges, thanks to the “significant technical
problems that have been encountered in the initial phases of
implementing the ACA.” The CBO’s projections were finished last
year, however, so they don’t incorporate the latest enrollment
data. 

3. CBO estimates that Obamacare’s risk corridors
program—the provision which has been dubbed a bailout of insurance
companies—will result in a net revenue gain for the government
rather than a net payout to insurance companies.
The CBO
projects that the government will make about $8 billion in payments
to insurers under the program and receive about $16 billion in
revenue in return, for a net gain of $8 billion. That estimate,
which was completed in early December, is based on the experience
with insurers participating in Medicare Part D, which also includes
a risk corridor program. This is a hard one to estimate. As CBO’s
report says, “the government has only limited experience with this
type of program, and there are many uncertainties about how the
market for health insurance will function under the ACA and how
various outcomes would affect the government’s costs or savings for
the risk corridor program.” Whether you think this is a likely
estimate, then, depends on whether you think Medicare Part D offers
a useful guide for what to expect from Obamacare. 

4. Taken by themselves, Obamacare’s insurance provisions
will increase the deficit by $1.4 trillion.
The Affordable
Care Act is a sprawling piece of legislation with a variety of
revenue mechanisms built in that are supposed to offset the
significant cost of the law. But CBO broke out the provisions that
are specifically related to the provision of insurance coverage—the
cost of the subsidies, the Medicaid expansion, the penalty payments
made as a result of the mandate, the tax on high-end coverage,
etc.—and found that, over the next 10 years, they will increase the
deficit by $1.48 trillion. (See the CBO’s table below.) This
doesn’t mean that Obamacare, as a legislative whole, is now scored
as a deficit hike. But it does mean that its central component, the
coverage expansion scheme, is. 

5. Under current law, annual budget deficits will remain
roughly equal to their current size for a few years before they
start to rise again.
This year’s deficit is projected to
total $514 billion, a big drop from the $1 trillion annual
shortfalls we were seeing during Obama’s first term. And next
year’s is projected to be slightly smaller—about $478 billion. But
that’s where the reduction stops. After that, CBO projects that
deficits will begin to rise again, both in dollar terms and as a
percentage of the economy.

6. Total federal debt is huge. In part
because the nation has run such large annual deficits over the past
few years, the total amount of federal debt is enormous. By the end
of this year, outstanding national debt will equal about 74 percent
of gross domestic product (GDP), rising to 79 percent over the next
decade. That’s going to create a drag on the economy for a long
time to come. “The amount of debt relative to the size of the
economy is now very high by historical standards,” the CBO’s report
says. “Such large and growing federal debt could have serious
negative consequences, including restraining economic growth in the
long term, giving policymakers less flexibility to respond to
unexpected challenges, and eventually increasing the risk of a
fiscal crisis.”

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