Repeal of Obamacare Could Lead to $1.07 Trillion in Net Deficit Reduction

Replacement plan could reduce deficit by as much as $657 billion over next 10 years

House Speaker Paul Ryan / Getty Images
April 6, 2017

Repealing the Affordable Care Act could reduce the deficit by as much as $1.07 trillion, according to a report from the Mercatus Center.

Former President Obama promised the Affordable Care Act would not only guarantee health insurance coverage for Americans with preexisting conditions, but that the law would lower health care costs and reduce the federal budget deficit.

The report notes that Obamacare failed to deliver on providing any fiscal benefits and that repeal of the law would substantially reduce the budget deficit.

"Repeal, effective in 2018, of the ACA's various spending and tax increases is expected to reduce federal deficits by a combined $586 billion through 2026, with plausible outcomes ranging from $228 billion to $1.07 trillion in net deficit reduction," the report states.

Savings might be reduced to $228 billion if the Obamacare exchange enrollment is larger than estimated, if the cost-sharing subsidies have been terminated, or if the Medicaid woodwork population has been underestimated.

Savings could be as high as $1.07 trillion, however, if Obamacare's insurance rules are repealed, if taxes remain uncollected, and if the Medicaid expansion costs are less than expected.

Obamacare failed to produce cost-savings because it put priority on increasing coverage rather than cost containment. This focus increased expenditures while failing to collect enough revenue to compensate for the higher spending.

While the Congressional Budget Office projected that the law would reduce deficits, it based these estimates with a baseline from the Balanced Budget and Emergency Deficit Control Act of 1985, which was different from the actual law.

Finally, the law did not produce as many cost-savings as projected because reforms were either scaled back, weakened, or not implemented.

"Even a conservative estimate of the amount of fiscal slippage caused by the various delays, suspensions, weakening, and repeals would find that the ACA has added substantially to federal deficits," said Charles Blahous, senior research fellow at the Mercatus Center and author of the study.

The report also looked at how Speaker Paul Ryan's (R., Wis.) repeal and replace plan, the American Health Care Act, would affect the deficit. The Congressional Budget Office has projected that the plan would reduce the deficit by $337 billion. After the legislation was changed, the CBO downgraded the bill's cost savings to $150 billion.

According to the study, the American Health Care Act may be budget neutral, reducing the deficit by as little as $42 billion, or it could reduce the deficit by as much as $657 billion over the next 10 years.

"Replacement provisions that add as much to federal deficits as the more conservative estimates of the savings from repeal run the risk of perpetuating the fiscal damage caused by the ACA," the report said.

Blahous also notes that, "in the context of any future health care legislation, [lawmakers] cannot responsibly ignore the implications of health care policy for federal finances."