February 26, 2015

February 26, 2015 | Commentary on Health Care, Obamacare

ObamaCare — Why, sure, it's 'paid for'

Republican Senate Budget Committee analysts reported last week that the Patient Protection and Affordable Care Act (ACA) — a.k.a. ObamaCare — would increase the federal deficit by $131 billion over the period from 2015 to 2024. Drew Hammill, a senior aide to House Minority Leader Nancy Pelosi (D-Calif.), dismissed the report as "complete garbage."

Name-calling is no substitute for analysis. The Senate budget analysts' work is fully transparent. Based on Congressional Budget Office (CBO) data on medical spending and labor market effects, it is quite easy to check out.

In fact, the Senate Budget analysts do not question any of the CBO's assumptions concerning ObamaCare's biggest fiscal problem: massive government spending. The CBO now says that the Medicaid expansion and the new exchange subsidies will cost taxpayers $1.9 trillion by 2024. It will account for more than half the cost-growth in federal health programs by 2023. An estimated 19 million people in the exchanges will get taxpayer-subsidized coverage by 2024. But there are likely to be more. If more employers drop coverage than the CBO anticipates, the costs of newly subsidized employees in the public exchanges could be explosive.

The Obama administration and its allies in Congress insist that the law is fiscally responsible because the big spending would be financed by lots of new taxes (18 of them) and substantial savings. Back in 2010, the CBO said that the ACA would indeed reduce the deficit by $124 billion by 2019. But recall that the CBO's initial 10-year score reflected the law’s "front-loading" of revenues and premium payments and its "back-loading" of benefit payments and new entitlement spending. The CBO then assumed it would be implemented as written.

Recall also that the law created a big long-term care program that would bring in $70.2 billion in revenues ("premiums") by 2019, thus contributing to the initial $124 billion in deficit reduction. But government actuaries soon judged the program to be unworkable, and Congress repealed it on a bipartisan basis. That huge chunk of revenues will never materialize on the ObamaCare balance sheet.

Other ObamaCare revenues surely belong on an "endangered" list. The CBO predicts that the individual mandate's tax penalties will hit a lot of poor and lower middle-income folks who don't fill out the right forms to get an exemption. There will be tremendous pressure to grant them relief. Meanwhile, the (delayed) imposition of the employer mandate tax penalties, once avidly promoted by earnest "progressives," is now being seriously opposed — by leading ObamaCare supporters.

Notice, too, that the "medical device tax" is universally hated. It has brought together 79 often-polarized U.S. senators in a perfect harmony of intense, bipartisan opposition. While Big Business merely dislikes the coming "Cadillac Tax" on expensive health plans, Big Labor, covered by those plans, positively loathes it. And that new 3.8 percent Medicare payroll tax — now reserved exclusively for "The Rich" — is designed over time to creep slowly but steadily down the income scale and invade the sacred precincts of the mighty middle class.

Equally unreliable are ObamaCare's "savings" provisions, particularly the 10-year, $716 billion from Medicare provider payment cuts. Of course, most of these "savings" are actually new "spending." The reason: Most of that money doesn't go to "deficit reduction" or back into the Medicare Trust Fund; instead, it helps fund the law's hefty Medicaid expansion and the heavy insurance subsidies in public exchanges.

In a March 20, 2010, letter to then-House Majority Leader Pelosi, the CBO expressed reservations over whether Medicare savings of that magnitude could be "sustained." Meanwhile, the Medicare chief actuary dismissed them as unrealistic. The reason: If such huge Medicare payment reductions were actually enforced, an ever larger number of Medicare providers would cut back their services or leave the program altogether. This could "jeopardize" seniors' access to care, as the chief actuary warned.

The notion that ObamaCare is a prescription for fiscal responsibility nonetheless persists. Unfortunately, there's no pill for that.

 - Robert Moffit is a senior fellow in the Heritage Foundation's Center for Health Policy Studies.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care, Obamacare

Originally appeared in The Hill