October 18, 2010
By Rea S. Hederman, Jr. and Paul L. Winfree
The Patient Protection and Affordable Care Act is one of the largest and most complicated overhauls ever enacted. Policy experts continue to debate the impact it will have. Among the issues that has raised concerns is its cost. Supporters point to an estimate by the Congressional Budget Office that the law will reduce the nation's budget deficit by about $140 billion over the next 10 years. But according to an analysis by The Heritage Foundation, the health overhaul could end up costing American taxpayers millions of dollars in higher health insurance premiums or put a tremendous amount of pressure on an already soaring national debt. The foundation offers an interactive Web calculator where readers can test their own judgments about the effect of the law, too. We investigated what would happen to the estimates from the Congressional Budget Office, the official scorekeeping arm of Congress charged with analyzing the budget implications of legislative proposals, if different assumptions were made about how the health overhaul will work. This is important because, during the health reform legislative debates, CBO provided Congress with cost estimates and impact reports about the bill. But CBO scores can be gamed. One rule Congress has repeatedly abused is that the CBO must score legislation as if all the provisions in a bill end up being enacted exactly as intended. But that rarely ever happens, especially with a law that calls for a massive change to one-sixth of the U.S. economy. For instance, the agency's baseline assumed that the alternative minimum tax will never be patched or another Medicare "Doc Fix" to prevent a big cut in doctors' reimbursements will never happen. Yet both of these short-term fixes have occurred every year since the issues arose more than a decade ago. Recognizing how political realities often are at odds with projected outcomes, CBO director Douglas Elmendorf recently acknowledged that certain parts of the estimates are unrealistic because public outcry and political maneuvering likely won't allow some of the legislation's key provisions to take effect. Since CBO is confined in its estimates, Heritage decided to draw from a larger crowd of outside experts to determine what happens if certain overhaul provisions don't deliver, or the results are better than expected. We looked at seven factors that came up repeatedly during the health reform debate, and then analyzed how various changes to each one could alter the CBO's final scorecard. Those factors include the individual mandate which, beginning in 2014, will require almost everyone to buy health insurance; planned Medicare cuts; expected losses in employer coverage; a new "Cadillac" tax on rich benefit plans as well as other new health care taxes; more adoption of health information technology; and a reduction in health insurers' administrative costs. The calculator draws on estimates from sources such as Harvard economist David Cutler, The Lewin Group and includes estimates from former CBO Director Douglas Holtz-Eakin, who has suggested that the number of individuals covered by employer-sponsored insurance will undergo a larger change than what the official CBO score approximated.
Our findings demonstrate just how sensitive the CBO's scorecard can be when slight differences are applied to the agency's underlying assumptions. For instance, if only 40 percent of the scheduled Medicare cuts actually occur, the law will push up the federal deficit by more than $132 billion in the first 10 years. In addition, if 14 million Americans (rather than the 8 million predicted by the CBO) end up leaving their employer-sponsored health plans, the federal deficit would jump by more than $300 billion. This could happen because more are enrolled in Medicaid or qualify for subsidies to purchase coverage in national health insurance exchanges.
And, because the health law imposes a 2.3 percent excise tax on medical devices (such as powered wheelchairs, hearing aids, breast-milk pumps, prosthetics, replacement joints, and diagnostic tools like MRI and CT scanners), that tax will likely be passed down to consumers (patients) in the form of higher premiums. Common economic theory explains that the burden of any tax is likely to be shared between the supplier and consumer.
The bottom line is that no one knows what the exact impact of health law will be once all of its provisions go into effect, which will take many years to occur and analyze. Americans need to be prepared for what they could face if it fails to meet up to CBO expectations.
Rea Hederman, Assistant Director, and Paul Winfree, Senior Policy Analyst, serve in the Center for Data Analysis at
The Heritage Foundation
First appeared in Kaiser Health News
Health Care Initiative of the Leadership for America Campaign
Rea S. Hederman, Jr.
Director, Center for Data Analysis and Lazof Family Fellow
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Paul L. Winfree
Senior Policy Analyst, Simulations
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