CBO Punts on Obamacare

National Review Online | Published on July 24, 2012

By Yuval Levin

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The Congressional Budget Office’s re-scoring of Obamacare in light of the Supreme Court’s decision was released today. It projects that the effect of the Court’s decision would not be very large—about 3 million fewer Americans insured in ten years, and about $84 billion less in spending over the next ten years (out of a total of about $1.7 trillion in spending on the law’s coverage provisions) than would otherwise have happened.

The methods by which CBO chose to determine these figures and to present them—for instance, avoiding offering specific state-decision scenarios on the Medicaid expansion and instead offering an average of an unknown number of scenarios with an unpublished range of outcomes—helps to minimize the appearance of uncertainty and the sense that the Court decision dramatically affected the range of plausible outcomes, though it surely did.

Moreover, CBO chose to assume that the Court’s reconfiguration of the individual mandate into a tax would have essentially no effect on compliance with the mandate. I actually think (as James Capretta and I noted on NRO last week) that it’s basically true that the Court’s decision won’t have a major effect on actual compliance in the real world, but that it should have a significant effect on CBO’s estimate of that compliance because the CBO’s original estimate was far, far too optimistic and relied in part on a premise that the Court’s decision should have badly undermined.

The insurance reforms in Obamacare create huge incentives for young and healthy Americans to avoid purchasing health insurance until they get sick. CBO originally projected that the vast majority of these people would still buy coverage, despite the mandate’s low penalty (relative to the cost of insurance), and in doing so the agency relied to a significant extent on evidence from behavioral economics suggesting that people obey legal requirements even when the penalty for doing otherwise is low. The Roberts decision last month, for all its considerable incoherence, would seem to close off that particular argument, since it plainly stated that the mandate could no longer be understood as a mandate but only as a tax on the uninsured. Would a $695 tax make you buy a $5,000 insurance policy if you knew you could get the policy for the same price later if you needed it?

Today’s CBO re-score insists that nothing has changed, however, and it does so by ignoring the nature and character of the Court’s decision. The report states that:

The Supreme Court’s decision upholding the constitutionality of the ACA’s provision requiring most individuals to obtain insurance coverage or pay a penalty tax does not change CBO and JCT’s assessment of the mandate’s effect on coverage.

But in fact, the Roberts decision specifically rejected this understanding of the mandate. Roberts wrote:

The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.

So as reinterpreted by the Court, the mandate is not “a provision requiring most individuals to obtain insurance coverage or pay a penalty tax” but is rather just a tax. By the CBO’s own prior reckoning, the fact of the requirement was a significant driver of compliance, so if it’s not a requirement then compliance would be diminished. The agency’s health-care analysts were aware of the problem in the course of this re-scoring, but in the end evidently decided they would do best to pretend it did not exist and report no significant effect on compliance.

As always, we have to approach CBO analyses with an appreciation for the enormous complexity of the tasks assigned to the agency—it is expected to predict the effects of impossibly convoluted legislation, and is required to do so under assumptions that bear little relation to reality. This re-score in light of the Court’s decision is not all that much less reasonable than the original score the agency provided before the Congress voted on Obamacare: Both involve some quite implausibly hopeful assumptions about how politicians, citizens, and businesses will behave in the future, and the agency had no choice but to adopt such assumptions. In this case as in many others, the particular figures in the report matter less than the general trend—no one can predict exactly how things will work out if Obamacare is permitted to take effect, but CBO lays out a broad trajectory.

In light of that fact, it’s worth noting how grim the basics are, even using CBO’s implausibly hopeful scenarios. The agency projects that the federal government will spend about $1.7 trillion, increase taxes by about a trillion dollars, and cut Medicare spending by more than $700 billion without any real structural reforms of the program (though it’s hard imagine that last one would actually happen in practice). It will create yet another unsustainable health-care entitlement program, expand the existing ones, micromanage the insurance industry in ways likely to make it even less efficient, employ even heavier price controls of the sort that have always failed in Medicare, and (especially through its taxes) stifle employment, investment, and medical research. And after all this, even the CBO’s very optimistic assumptions leave it concluding that 30 million Americans will be uninsured a decade from now—we will have gone from today’s 80% coverage to 89% in 2023. If that’s what the Left means by universal coverage, there are far, far less costly and counterproductive ways to get there.

That 30 million uninsured figure in today’s CBO report put me in mind of a passage from Confidence Men, Ron Suskind’s 2011 book about President Obama’s early domestic and economic policy decisions. Suskind describes Obama’s early resistance to including an individual mandate in the health-care bill (he had, after all, run against the idea in the 2008 election). His advisors were firmly in favor of a mandate. In April 2009, Nancy-Ann DeParle, who was leading the White House health-reform effort, sent the president a memo expressly making the case for a mandate as essential to reducing the number of uninsured Americans. Suskind writes:

Obama, never much for the mandate, was concerned about legal challenges to it but was impressed by DeParle’s coverage numbers. Without the mandate, the still-sketchy Obama plan would leave twenty-eight million Americans uninsured; with the mandate, the estimates of the number left uninsured were well below ten million.

Today’s CBO report projects that Obamacare with the individual mandate (or tax, or whatever) would leave 30 million Americans uninsured—more than the number that Obama was told the law would leave uninsured without the mandate, and which he considered so appalling as to justify a move that he believed risked a constitutional challenge (and which indeed resulted in one). You have to wonder if in his heart of hearts the president is not as disappointed with Obamacare as most Americans are.

There’s a way out, Mr. President: You just have to vote for the other guy.

Yuval Levin is Hertog fellow at the Ethics and Public Policy Center and editor of National Affairs.