Whenever major legislation is passed, there are always concerns about how it will impact the overall government budget. The United States has been running on a budget deficit for many, many years, and any legislation that will increase that deficit faces a high degree of scrutiny.

When the Affordable Care Act (ACA) was passed, there was a lot of concern regarding what the extra costs would do to the federal budget. The ACA, also known as ObamaCare, increases federal funding in several ways. The Congressional Budget Office (CBO) has estimated that the impact will be an overall decrease of the deficit over time if everything goes as expected.

Government Estimates of the Impact of the ACA

When the ACA was passed in 2010, the government’s Congressional Budget Office and Joint Committee on Taxation (JCT) were responsible for estimating the financial impact of the legislation. Their original conclusion, using the numbers Congress provided, was that the ACA would reduce the budget deficit by $143 billion over the 10 years of 2010-2019, with increased deficit reduction in the second decade. This was based on an assumption of $124 billion in savings on health care costs and increased taxes, and $19 billion in savings based on education.

Of course, that estimate is based on the law as it stood at that time. Additional amendments, exemptions, and changes over time have changed the picture. In July 2012, the CBO put out an estimate that said that repealing the law would cost $109 billion over 10 years. Part of this difference is attributable to a different 10 year period, using 2012-2021 instead of the previous timeframe. Changes in the law also caused differences in estimates.

The CBO also stated in its report that the estimates are uncertain because the actual effects of the ACA are not yet certain. In fact, the CBO and JCT have now indicated that most of the effects of the ACA on the deficit are impossible to isolate from other impacts. This is because the law significantly modified existing legal codes, and knowing what budgetary impacts resulted exactly from those changes is not possible. It is, however, possible to assess the impact of programs newly created by the ACA.

Given the sweeping nature of the legislation, it’s not surprising that the exact budgetary impacts are not easy to estimate. However, many people still have concerns about the ACA and the budget deficit.

Concerns about the ACA’s Impact on the Deficit

The CBO and JCT provide estimates for laws exactly as written, but often, additional changes are made before implementation. In the instance of the ACA, there were a number of changes, and the law continues to undergo changes and modifications. For example, in May 2014, the government established the manner in which it will index ObamaCare premium subsidies, shifting more costs from individual consumers to the government instead, relative to how CBO interpreted the law when it was passed. An analysis by Investor’s Business Daily indicates that the additional cost to the government will be $7 billion over 10 years, which the publication characterizes as a relatively small change. In addition, there has been an explosion in the number of exemptions available from the tax penalty for not having insurance. These are just two recent changes to the ACA that affect the government’s budget. It’s not ill-advised to expect many more.

The ACA has been contentious from the day it was proposed. Supporters say that the overall effect on the deficit will be highly positive. Opponents say that the law will negatively affect the U.S. economy. Only time will tell what the true numbers will turn out to be.

Sources:

http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf

http://www.cbo.gov/publication/43471

http://www.thefiscaltimes.com/Articles/2014/06/05/CBO-Quietly-Drops-Forecast-Obamacare-Will-Cut-Deficit

http://money.cnn.com/2013/10/28/news/economy/obamacare-deficits/