Scoring Obamacare Repeal

• A new report from CBO confirms that Obamacare repeal would boost total economic output and worker compensation by nearly one percent.

• Obamacare repeal would lead to lower taxes and less spending.

• CBO’s estimate of the deficit impact of Obamacare repeal depends on significant uncertainties, particularly about the extent of Medicare savings.

“While CBO’s report notes that the deficit impact of repealing the law is highly uncertain, and could even reduce the deficit, it does show that repealing this law will boost nationwide employment and grow the economy.” – Budget Committee Chairman Mike Enzi, 6/19/2015

On June 19, CBO released its estimate of the effects of Obamacare repeal. The agency released a set of conventional projections on its way to a final score that accounts for Obamacare’s impact on the economy. These include Obamacare reducing labor supply, capital stock – things like equipment and materials – and economic output. CBO notes several times in the report that its estimates, particularly beyond the first decade, are highly uncertain. The dynamic estimates have less uncertainty because they incorporate feedback from how the law affects people’s behavior.

Obamacare Repeal Would Boost Economy

Obamacare’s subsidy structure creates a steep drop in government assistance when people earn additional income. In a February 2014 report, CBO estimated that this would reduce work hours by an amount equivalent to two million full-time workers in 2017; and 2.5 million full-time workers by 2024. Last week, CBO estimated that Obamacare repeal would increase total worker compensation by about one percent, would increase the nation’s capital stock, and would raise total economic output by about 0.7 percent. A 0.7 percent increase in the economy translates to an average of $1,400 in extra income for each household each year.

Obamacare Repeal Would Lower Taxes and Spending

CBO estimates that repeal would reduce outlays on exchange subsidies by $822 billion and would cut outlays on Medicaid expansion by $824 billion over the next decade.

Including eliminating the individual mandate, the employer mandate, and the excise tax on high price plans, CBO estimates that repeal lowers federal tax revenue by $1.174 trillion over the next decade in its conventional model. Because Obamacare reduced payment rates or slowed payment rate increases for Medicare Part A and B services, repealing Obamacare would boost Medicare spending, although the estimated amount depends on CBO assumptions.

CBO estimates that in 2017 repeal will reduce the number of people with exchange coverage by 23 million and the number of people with Medicaid/CHIP by 11 million. CBO also estimates that repeal would lead to an increase of eight million people with employer-based coverage, four million people with non-group coverage, and 22 million people without insurance.

Obamacare Repeal Deficit Impact Depends on Assumptions

Using CBO’s conventional model, which is limited because it does not account for Obamacare’s drag on the economy, repeal would reduce federal budget deficits by $12 billion over five years and would increase deficits by $353 billion over 10 years. In its “dynamic” model, repeal would reduce federal budget deficits by $108 billion over five years and would increase federal budget deficits by $137 billion over 10 years. The main difference between the conventional and dynamic estimates of repeal is that the dynamic estimates account for people working and earning more in the absence of the law. Since the economy is larger, the federal government collects more revenue, which CBO estimates to be about $225 billion over the decade.

According to CBO, “The uncertainty is sufficiently great that repealing [Obamacare] could reduce deficits over the 2016-2025 period – or could increase deficits by a substantially larger margin that the agencies have estimated.”

CBO projects that repeal would increase deficits outside the 10-year budget window because net savings from repealing the law’s insurance coverage provisions would grow more slowly than would the cost of repealing other provisions, such as reducing updates to Medicare’s payments.

One of Medicare’s public trustees, Charles Blahous, has written that repealing Obamacare would lower federal deficits. This is because CBO is required to assume that after Medicare’s trust fund is depleted, “full benefits would continue to be paid even though this is not permitted by law and there is no historical precedent for such action.” According to Blahous, the budgetary cost of repealing the Medicare cuts “is almost certainly below $250 billion – or at least $550 billion lower than the directed score. Given that this total score shows repeal adding either $353 billion or $137 billion to the deficit, depending on whether economic feedback effects are included, the actual change in law under repeal would clearly reduce the deficit.”