In recent weeks, the Biden administration has begun asserting that the spending bill independent experts believe could cost $5.5 trillion over a decade will actually cost “zero.” Putting aside the way these patronizing assertions insult voters’ intelligence, does the kernel of the Biden claim—that the Democratic reconciliation proposals will be fully paid-for—stand up to scrutiny?
In a word, hardly. Multiple elements in the history of Democrats’ last big spending bill, Obamacare, have turned it into a budget buster, suggesting that Biden’s “zero” legislation will follow the same fiscally irresponsible path.
Budget Gimmicks Galore
First, the Obama administration and Democrats in Congress employed numerous fiscal gimmicks. While drafting the bill, they delayed implementation of the bill’s main provisions from 2013 to 2014, lowering the upfront spending.
In his September 2009 speech to Congress, Barack Obama claimed his proposal “will cost around $900 billion over ten years.” Not only did the final legislation come in hundreds of billions over his claim, it also counted the law’s Medicare savings as both funding Obamacare and extending Medicare’s solvency—a budgetary trick refuted by both the Congressional Budget Office (CBO) and the Medicare actuary.
Another Obamacare gimmick came in the CLASS Act, a long-term care program. Kent Conrad, then the Democratic chairman of the Senate Budget Committee, famously called CLASS “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of,” because it would generate a mirage of surpluses in its initial ten-year budget window, only to run huge losses in future decades. When in 2011 the Obama administration couldn’t certify CLASS’s actuarial soundness, the program never got off the ground, and $70.2 billion in phony “savings” suddenly evaporated.
Democrats plan to employ many similar gimmicks in their current spending spree. Rep. Alexandria Ocasio-Cortez, D-New York, suggested lowering the bill’s cost by cutting programs from ten years to five—with every expectation that future Congresses will extend them.
Democrats also are counting on funny money from “dynamic scoring,” making the illogical and contradictory claim that expanding the welfare state will increase economic growth and tax revenue. And the Treasury Department proposed that one tax increase—closing the loophole that Biden himself exploited to reduce his family’s payroll taxes by nearly $517,000—get deposited into the Medicare Trust Fund, reprising Obamacare’s double-counting scheme.
Savings Provisions Undone
The second ding on Obamacare’s soundness comes from provisions repealed by subsequent Congresses. Repealing the health insurer tax and the medical device tax, as a bipartisan spending bill did in 2019, lowered insurance premiums, but also added to federal deficits.
Congress also repealed two other Obamacare provisions—the “Cadillac tax” on high-cost employer insurance, and a cap on per-beneficiary spending in Medicare—with the potential to lower long-term health costs and contain entitlement spending. Both provisions had significant flaws. For instance, the unelected board was directed to enforce the Medicare spending cap in ways that could have impaired access to treatments.
Lawmakers, including Republicans, should have insisted on creating better alternatives before repealing these cost-containment provisions outright. They did not.
Obamacare’s third fiscal flaw comes via provisions that future Congresses will likely need to revisit. While providing a one-time increase in the number of hospitals’ patients with health coverage, the law reduced their Medicare payments in perpetuity.
Every year since Obamacare’s passage, the Medicare actuary has released reports calling these productivity adjustments unsustainable. The most recent version noted that within two decades, the perpetual payment reductions would cause one-third of hospitals and 60 percent of nursing homes to lose money, “raising the possibility of access and quality-of-care issues for Medicare beneficiaries”—issues that Congress would have to address.
Costs Exceed Estimates
Finally, the estimates of budget scorekeepers can miss the mark, sometimes wildly. A December 2017 Congressional Budget Office analysis demonstrated that CBO greatly overestimated enrollment in and federal spending on subsidized coverage in Obamacare’s exchanges, while underestimating enrollment and costs in “free” Medicaid coverage in states that chose to expand that program.
Recall too that while CBO claimed the federal takeover of student loans would save $58 billion over ten years at the time of its inclusion in Obamacare, an Education Department analysis last year concluded that this “pile of toxic debt” could cost taxpayers $435 billion.
As Democrats attempt to enact a second Great Society agenda, the Medicare program they want to expand provides a cautionary tale. In 1965, Medicare coverage of physician services was estimated to require “federal appropriations of about $500 million a year from general tax revenues.” Last year, general revenue transfers to Medicare Part B totaled $328.4 billion—an 76-fold increase, even after accounting for inflation.
It seems that no matter the president, nothing becomes so costly as a “free” government program.