Health care law will not reduce the deficit

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  • There’s good reason to suspect government will not implement the #ACA as written.

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  • Physician payments are not the only problematic component of the #ACA. Cuts in payment rates to hospitals are draconian.

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  • How much will the ACA actually increase the deficit? Roughly $500 billion in the 10 years says @AEI’s Conover.

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The Congressional Budget Office (CBO) announced this week that repeal of the Affordable Care Act (ACA) "would cause a net increase in federal budget deficits of $109 billion over the 2013-2022 period." In reality, it's leaving the law as it currently stands that would explode the federal budget gap. ACA will increase the deficit by roughly $2 trillion in its first two decades. The law's repeal would reduce it correspondingly.

Does this mean the CBO is lying? No, it is simply doing its job.

The CBO provided a very important caveat at the tail end of its letter to Speaker Boehner about the impact of H.R. 6079 (the bill to repeal ACA):

Those calculations incorporate an assumption that the provisions of current law would otherwise remain unchanged throughout the next two decades. However, current law includes a number of policies that might be difficult to sustain over a long period of time. [Emphasis added] For example, the ACA reduced payments to many Medicare providers relative to what the government would have paid under prior law. On the basis of those cuts in payment rates and the existing "sustainable growth rate" mechanism that governs Medicare's payments to physicians, CBO projects that Medicare spending (per beneficiary, adjusted for overall inflation) will increase significantly more slowly during the next two decades than it has increased during the past two decades. If those provisions would subsequently be modified or implemented incompletely even in the absence of H.R. 6079, then the budgetary effects of H.R. 6079 could be quite different-but CBO cannot forecast future changes in law or assume such changes in its estimates.

In short, CBO is legally required to base its estimates on "current law" even if no one believes current law will be implemented to the letter.

"There's good reason to suspect government will not implement the law as written. Congress boasts an extensive track record of side-stepping laws that are too painful to adopt." -Christopher ConoverThere's good reason to suspect government will not implement the law as written. Congress boasts an extensive track record of side-stepping laws that are too painful to adopt. For example, in every year since 2002 the "sustainable growth rate" formula in current Medicare law technically requires cuts in payments to physicians. Yet every year, Congress has overridden these cuts, most recently last February, when it postponed required cuts until December 31, 2012.

This so-called "doc fix" is one of many matters Congress will have to take up in the lame duck session following the election. If legislators fail to act, the law will require Medicare payments to doctors to be cut by roughly 31 percent. Based on the past decade of experience, no one seriously believes Congress would allow that to happen; nevertheless, because such a cut is technically required by current law, the CBO cost estimate assumes it will go into effect exactly as scheduled.

Physician payments are not the only problematic component of the ACA. Cuts in payment rates to hospitals likewise are so draconian that even Medicare's own actuary has estimated that law would result in hospitals eventually being paid 61 percent less by Medicare than by private health insurers. Cuts of that magnitude are so inconceivable that in the 2012 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, the Board specifically warned that "Medicare's actual future costs are highly uncertain and are likely to exceed those shown by the current-law projections."

Due to concerns about the misleading estimates that would result from strict reliance on current-law estimates, Medicare's actuary for several years has provided a formal "illustrative alternative scenario" containing more realistic projections of actual Medicare spending. This alternative scenario shows that the program's spending will be much higher than current-law estimates, certainly more than enough to eviscerate any alleged deficit reduction.

So how much will the ACA actually increase the deficit? Fortunately, the ex-director of CBO is not constrained to report only current-law estimates. In a study released immediately after the law was passed, Douglas Holtz-Eakin estimated that after stripping out all the "gimmicks and budgetary games," a more realistic estimate is that the ACA would add roughly $500 billion to the deficit in its first 10 years and about $2 trillion in its first two decades. The new CBO figures do not appreciably alter this conclusion. The current-law estimates of the impact of the ACA are dead wrong. Informed Americans should not be fooled by claims that the ACA offers deficit reduction.


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About the Author


Christopher J.

  • Christopher J. Conover is a Research Scholar in the Center for Health Policy & Inequalities Research at Duke University, an adjunct scholar at AEI, and a Mercatus-affiliated senior scholar. He has taught in the Terry Sanford Institute of Public Policy, the Duke School of Medicine and the Fuqua School of Business at Duke. His research interests are in the area of health regulation and state health policy, with a focus on issues related to health care for the medically indigent (including the uninsured), and estimating the magnitude of the social burden of illness. He is the recent author of The American Health Economy Illustrated and is a Forbes contributor at The Health Policy Skeptic.

    Follow Chris Conover on Twitter.

  • Phone: (919)428.4676

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