On March 13, 2012, the Congressional Budget Office (CBO)[hyper-link to: http://www.cbo.gov/publication/43080] announced its newly projected cost of the Affordable Care Act (ACA). Their latest, more accurately projected, figures represent an added cost of at least $340 billion and as much as $530 billion to the federal deficit over the years 2012 to 2021. Additionally, CBO reported the health care law to increase federal spending by more than $1.5 trillion over the same 10 -year period, with further increasing amounts following. These numbers represent significant increases from the CBO’s original $940 billion total cost estimate--- forecasted before both the law’s complete inception in 2010 and full implementation in 2014.
The Obama Administration’s careful construction of the health care law, delaying its entire implementation until 4 years after passage, allowed the CBO’s initial score to appear much lower than it would actually be. The statute’s true ten-year cost estimate will not be available until next year, given it is not overturned by the U.S. Supreme Court or repealed. However, CBO’s latest projections demonstrate a much more accurate cost estimate for a projected ten years over its initial six year approximation.
Conducted in conjunction with the staff of the Joint Committee on Taxation (JCT), the CBO’s 2012 report also presented updated cost estimates of the ACA’s insurance coverage provisions. The law’s coverage provisions, on net, add to the budgetary impact of the health care law on the federal government. Through 2022, the last year of available projections, the gross cost of coverage expansions is $265 billion. Meaning, the first decade of the Affordable Care Act may, ultimately, cost the federal government around $2 trillion--- more than double its original estimate.
The country’s weaker economic conditions will begin to contribute to more people obtaining health coverage through Medicaid than estimated a year ago. Under ACA, beginning in 2014, Medicaid will be expanded to all U.S. citizens under 133% of the federal poverty level (FPL); creating a national foundation of coverage based on income. Whereas, Medicaid, traditionally, has only been available to certain categories of individuals. As a result, fewer people will be getting health coverage through their employers or the health care law’s new subsidized insurance exchanges.
Additionally, the ACA is expected to increase Medicaid and the Children’s Health Insurance Program (CHIP) enrollment by 17 million; up 1 million from last year’s CBO baseline. This change will cost the federal government even more money the first expected. According to CBO, the net costs, specifically the combined effects on federal revenues and mandatory spending, may lead to an additional gross cost of $1.5 trillion for Medicaid, CHIP, tax credits and other subsidies for the purchase of health insurance through newly established exchanges and tax credits for small employers.
While these costs are figured to be slightly offset by estimated receipts from penalty payments, the new excise tax on high-premium insurance plans and other budgetary effects, the cost of these insurance provisions would still be approximately $1.1 trillion. Ultimately, through the enactment of all of the ACA’s coverage provisions, the federal deficit will increase by an estimated $1.083 billion. Yet, another cost the U.S. government cannot afford.
Senior Research Fellow at the Mercatus Center at George Mason University and Public Trustee for Social Security and Medicare Trust funds, Charles Blahous, has further illustrated the actual costs of the health care law within his report “The Fiscal Consequences of the Affordable Care Act.” His findings, released April 10, 2012, demonstrate that contrary to promises by President Obama and others supporting the ACA, the provisions within the law do actually add to federal spending and the deficit.
Blahous presents two primary arguments. First, the health care law’s cuts to Medicare should be included in contributing to Medicare’s solvency, and should not be redirected towards reducing the deficit. Health and Human Services Secretary Kathleen Sebelius, in March of 2011, admitted that the ACA double-counts its reductions in Medicare spending, by asserting that the law lowers the deficit and expands Medicare’s solvency. Mr. Blahous claims these Medicare cuts cannot be double-counted for savings from the law, as done by CBO. The ACA’s fiscal effects have been misunderstood because government scorekeeping conventions contrast with enacted law.
For instance, the health care law relies upon large amounts of savings already required under prior law to continue the solvency of the Medicare Hospital Insurance (HI) Trust Fund. Such savings do not illustrate new net savings, available to be used without increasing the deficit, but replacements for spending reductions that would have occurred by the law without the ACA. Moreover, the health care law attempts to use the same cost-savings to finance new health entitlement spending---- thus, exceeding its cost-savings provisions. The notion of “double-counting” has evolved into evaluating the actual change in law upon the ACA’s total enactment.
Second, Congress is, more than likely, to increase the ACA’s spending causing them to fail to enforce the law’s spending cuts and tax increases. This will, in turn, deteriorate the law’s fiscal results. Several of the provisions contained within the law may not be enforced as originally dictated. Blahous points out that the costs of new health exchanges may be drastically higher than first projected. Further, the rising projected revenues of provisions like the “Cadillac-plan” tax and the new 3.8-percent surcharge on incomes over $200,000/$250,000 may not even fully occur. The Independent Payment Advisory Board’s (IPAB) cost-saving recommendations might be legislatively overridden; and the CLASS program--- which CBO previously scored as saving $70-$86 billion over 10 years, is not expected to be implemented.
Both the effects on projected federal deficits and the effects on federal health care spending from the ACA are co-dependent upon one another. In fact, if the government were to try and ensure that their fiscal outlook was not worsened, fully two-thirds of its new health exchange subsidies would need to be repealed before benefits begin in 2014. Also, all of the new health subsidies and most the law’s Medicaid/CHIP expansion would need to be eliminated in order to divert larger federal health care financing commitments.
Thus, there is a wide belief that in order for health care reform to be effective, it must both improve net federal finances and bring down the health care cost curve--- according to Mr. Blahous’ findings, the ACA is projected to do neither. Ultimately, the health care law will increase the pre-existing unsustainable government commitment to health care spending, worsen projected federal deficits, all while noticeably increasing the already bleak federal government’s fiscal outlook.