March 22, 2011

March 22, 2011 | Commentary on Health Care

Savings from Health-Care Law are an Illusion

For years, Washington has been on an out-of-control spending binge, and the Patient Protection and Affordable Care Act is on track to make things much worse. Despite claims from the Obama administration and supporters, the act - with its expansion of existing entitlement programs and creation of several new ones - will not reduce the federal deficit in coming decades.

Even the Congressional Budget Office, Congress' official scoring arm, has questioned the likelihood that the act could operate in the manner required to actually produce the savings it claims. While CBO estimated the law would cut projected deficits by $124 billion over its first decade, this number doesn't tell the full story. CBO does respectable work but is tied to certain assumptions that even its own officials admit do not paint a realistic picture of the future fiscal implications of the new law.

The first problem with these rosy "savings" is that CBO scores the law for only the first 10 years of its implementation. But that time frame includes only six years of the law's costly provisions. Meanwhile, new taxes and spending cuts are frontloaded, beginning much sooner. A full 10-year outlook of both new spending and offsets tells a different, much less attractive, story.

CBO also must assume that all of the law's cuts to existing programs will go into effect. In reality, the law includes such deep cuts to Medicare that even CBO Director Douglas Elmendorf concluded they are likely to be unsustainable. If the cuts don't occur, new spending will be added to the deficit. Even if they do occur, savings have been pledged to simultaneously pay for new spending and increase Medicare's long-term solvency. But they cannot do both. Double-counted savings in Medicare mean more deficit spending.

Savings from the CLASS Act, a new long-term care insurance program included in the law, also are double-counted. The CLASS program itself has been deemed unsustainable by experts on both sides of the aisle. Program beneficiaries must pay premiums for five years before seeing benefits - so in its initial years, the CLASS program creates the illusion of savings. Later, though, it will run permanent deficits. This "Ponzi scheme of the first order," as one senator aptly called it, certainly won't do anything to lessen the nation's financial burdens.

The law also creates a new health-insurance subsidy program for low- and middle-income Americans to buy health plans through new health-insurance exchanges. CBO predicts that 19 million Americans will qualify for subsidies, to the tune of $460 billion by 2019. But this prediction doesn't account for the substantial incentives in the law for employers to drop health coverage for their employees and instead dump them into the exchanges to receive taxpayer-subsidized insurance. This effect likely will add millions to the exchanges, far above what was initially projected.

Finally, the law doesn't address the "doc fix," which adds hundreds of billions to the deficit in coming years. Under current law, Medicare is scheduled to reduce payments for physicians under its "sustainable growth rate" mechanism. But Congress delays the cuts each year because of the severe impact they would have on seniors' access to doctors. As Elmendorf noted, it is unlikely that Congress will allow the 25-percent reimbursement cuts to go into effect. Earlier versions of liberals' health legislation paid for the "doc fix," but the act that was passed does not. By neglecting to include the fix, lawmakers left it to be funded by more deficit spending - whether it's officially on the books or not.

The act not only creates unaffordable spending on new health-care programs that will explode the deficit but also does nothing to address the skyrocketing costs of existing health-care budget busters: Medicare and Medicaid. This means that, in decades to come, Americans can expect to see deficits well above last year's unprecedented $1.3 trillion.

If Congress is serious about reducing the deficit and controlling spending, lawmakers should repeal the act. They also need to drop easily manipulated budget rules and require legislation to be scored over a long-term window, so that lawmakers have a clear idea of how new laws will affect future deficits. Finally, Congress should put mandatory spending for entitlements, which currently run on auto-pilot, on a long-term budget.

While Americans have been forced to make changes to their lifestyles to reflect budget constraints under the current economic climate, Congress did the opposite in passing this law. This bloated health-care overhaul will cost current and future taxpayers significantly if it is allowed to continue.

Kathryn Nix is a research assistant in the Center for Health Policy Studies at The Heritage Foundation.

About the Author

Kathryn Nix Policy Analyst
Center for Health Policy Studies

First appeared in The Colombus Dispatch