On Thursday, Sen. Jeff Sessions (R-AL), the ranking member of the Senate Budget Committee, stated on the Senate floor that not only will ObamaCare cost $2.6 trillion in its first 10 years of full implementation, but that it will add $17 trillion to the nation’s long-term unfunded liabilities.
Before I continue, I do have to explain the concept of “present value”. Except for the $2.6 trillion 10-year value, the list of figures Sen. Sessions gives are in that concept. It is one of a few common measures of long-term finances, specifically one designed to measure what is required today to avoid (excepting earned interest, which in this case appears to be assumed to be roughly 3.25%) any future draw on financing over, in the case of the federal government’s usage of the term, the next 75 years. Usually when it is invoked by the federal government, the value of legislated, but unfunded, claims on general-fund revenue, such as those contained in the Hospital Insurance “Trust Fund” and legislated mandates to fully-fund Medicare Parts B and D regardless of whether their dedicated funding sources are sufficient, are not included in that calculation. However, the Medicare Trustees include that, as well as the $2.5 trillion in Social Security “Trust Funds”, in their unfunded liability calculations from the “budget perspective”, and on the health-care side, so did Sen. Sessions.
Quoting from the video above:
President Obama told the American people that his health law would cost $900 billion over ten years and that it would not add ‘one dime’ to the debt.
But we have shown the cost for ten years of implementation is actually $2.6 trillion—almost three times as much. In addition, the offsets used to reduce the law’s official cost were enormous and phony, as I have discussed before, and will detail at another time. The more we learn about the bill, the more we discover that it’s even more unaffordable than was suspected.
So, over a period of about three months, our staff worked to estimate the new unfunded liability imposed by the health law. This is not the total cost of the bill, but the unfunded, mandatory coverage obligations incurred by the United States government on behalf of the United States people over a period of time. An unfunded obligation is basically the amount of money we have to spend on a mandatory expense that does not have a funding source—money we don’t have but that we are committed to spend. It is this kind of long-term, unfunded obligation that has placed this nation’s financial situation at such great risk. It is what has called witness after witness before the Budget Committee, where I serve as Ranking Member, to tell us that we are on an unsustainable path. That means money we will either have to print, borrow, or tax to meet the obligations we have incurred as a people as a result of the passage of this bill. For instance, Social Security has an unfunded liability of $7 trillion over the next 75 years. That’s an enormous sum. It’s double the entire amount of the United States budget today.
My staff used the models that are used by the Centers for Medicare and Medicaid Services and worked diligently to come up with a figure. That figure—based on the administration’s own optimistic assumptions and claims about the cost of the law—is an incredible $17 trillion. That is more than twice the unfunded liability of Social Security.
When you include the new health law with our existing obligations like Social Security, Medicare and Medicaid—we now have $99.4 trillion in total unfunded obligations over 75 years….
Let me briefly explain some of what now comprises this additional $17 trillion in unfunded obligations.
$12 trillion is for the health care law’s premium subsidy program. You see, the law created new regulations that drive up the price of insurance for millions of Americans. The writers of the law knew it would inflate the cost of insurance premiums, so to cover that cost they had to include new government subsidies so people could pay for their more expensive insurance.
On Medicaid, this new health care law has added another $5 trillion in unfunded liabilities. This is on top of the substantial unfunded obligations that the federal and state governments have already had to take on in order to support Medicaid, and they have vigorously protested to us, warning of these deep, additional expenditure requirements that are falling on the states.
Obviously, we cannot “pre-fund” those future liabilities as they are far greater than our ability to pay now, Indeed, as we are discovering with the Social Security and Medicare Hospital Insurance “Trust Funds”, even the fiction of “pre-funding” through the “Trust Funds” is being blown up as the federal government is and will be forced to come up with far more than the current face value of said “Funds”.
There is a second measure of future liabilities discussed by both the Medicare Trustees and Social Security Trustees, what percentage of cumulative GDP over the next 75 years is required to cover the shortfall. That is useful for estimating what it would take to fund an unfunded liability in the future. The Social Security Trustees put the “present value” of the cumulative GDP between 2011 and 2085 at $873.7 trillion. Dividing the $17 trillion (present value) in unfunded liabilities into that $873.7 trillion (again present value) means that implementing ObamaCare will cost us an additional 1.94% of the entire economy over the next 73 years and some months.
When one extends that math to the rest of the liabilities, which if one applies the broader “budget perspective” to the remainder is over $102 trillion in present value, nearly 11.7% of the entire GDP will be going to cover the unfunded obligations of the welfare state. As Sen. Sessions said, that is not the entire cost, but just the portion that won’t be covered by the revenues already dedicated to them. Considering the historical post-World War II average federal revenues are roughly 18-19% of GDP, I’ll let you guess as to whether tax increases could possibly cover this unfunded spending.
EDIT: Steve – Figures in last paragraph corrected
To put that in another perspective, the Social Security Trustees estimate that the nominal (not adjusted for inflation) cumulative GDP will be $9.603 quadrillion dollars, or if you prefer, $9,603 trillion. 11.7% of that, the unfunded liability discussed above, is $1.124 quadrillion (or $1,124 trillion). That, if the mother of all tax increases is not imposed, will be a part of the public debt. By comparision, the nominal value of GDP in 2085 will be only $435 trillion. Even before any of the other deficit spending, or the current debt, is considered, that means publicly-held debt would be 258% of GDP by 2085 exclusively because of the unfunded liabilities.