Published January 19, 2011
The Congressional Budget Office says repealing the Affordable Care Act would increase the deficit by $230 billion over the coming decade and by a modest amount in the decade after that. The CBO estimate has become the central defense by ACA advocates fighting the upcoming repeal vote in the House.
They might want to re-think their strategy. A close examination of CBO’s work and other evidence undercuts this budget-busting argument about repeal and leads to the exact opposite conclusion, which is that repeal is the logical first step toward restoring fiscal sanity.
Federal finances are buckling under the weight of unaffordable entitlement programs. So what is the primary aim of the ACA? Open-ended entitlement expansion: to more people at greater expense than any time since the 1960’s. If CBO is right, 32 million people will be added to the health entitlement rolls, at a cost of $938 billion through 2019, and growing faster than the economy or revenues thereafter.
How, then, does the ACA magically convert $1 trillion in new spending into painless deficit reduction? It’s all about budget gimmicks, deceptive accounting, and implausible assumptions used to create the false impression of fiscal discipline.
For starters, that $1 trillion price is a low-ball estimate, covering only six — not ten — years of subsidies that don’t begin until 2014. The uninsured were clearly less of a priority than the deception of making the law look less expensive than it really is over its first decade. Over ten years of full implementation, it’s more like $2.3 trillion.
Next up is the CLASS Act (for the Community Living Assistance Services and Supports Act) providing a new long-term care insurance entitlement. CLASS hitched a ride on the ACA for one reason only: premiums are collected in the first ten years, but no benefits are provided. Voila, it creates the perception of $70 billion in deficit reduction. In fact, CLASS is a bailout waiting to happen, as it will attract mainly sick enrollees. Only in Washington could the creation of a reckless entitlement program be used as “offset” to grease the way for another entitlement.
The deepest spending cuts in the ACA are in Medicare. Let us be very clear: Medicare needs real reform that generates genuine budget savings. Sadly, the ACA’s cuts are illusory. Medicare’s payments to health care providers would fall below those of Medicaid. The network of hospitals and physicians willing to care for Medicaid patients is notoriously constrained. About 15 percent of the nation’s hospitals would have to stop seeing Medicare patients in just a few years to stem their losses. The idea that Medicare could pay less than Medicaid is such sheer folly that Congress will rapidly reverse course. What’s worse, ACA’s advocates are double-counting this fictional savings, claiming it can pay both for the ACA’s entitlements and Medicare solvency too. The truth is, these cuts cannot be relied upon to pay for anything.
The fantasy of deficit reduction from the ACA is also built on a $410 billion tax increase over the coming decade, and a flood of revenue in the years after built on cynically replicating the flawed AMT-style revenue creep. New Medicare taxes initially apply only to individuals with incomes over $200,000 and couples with incomes above $250,000. But those income thresholds do not rise with inflation, so more and more families will pay them each year. Similarly, the new “Cadillac tax” on expensive insurance applies to premiums for family coverage above $27,500 in 2018, but that threshold will rise with general inflation, not medical costs. It’s particularly noteworthy that this tax is instrumental to the claim of deficit reduction in the second decade, but it is so controversial that Barack Obama was never willing to collect it himself. Overall, CBO says the ACA’s tax hikes will reach 1.2 percent of GDP in 2035, or a whopping $180 billion annually in today’s terms.
So, even if CBO’s analysis were flawless, the authors of the ACA guaranteed a misleading bottom line. Their legislative prescriptions were written to create deficit reduction only on paper — not in reality.
In addition, a central CBO assumption could be disastrously off the mark. Today there are about 111 million Americans who could qualify for help to buy insurance through the exchanges, if they weren’t eligible for an employer plan. CBO assumes that only 19 million of them would be getting new premium assistance in 2019 even though the new subsidies are so generous that low- and moderate-income workers come out way ahead if they get paid in cash, not benefits, and move to the new entitlement.
With such a large financial incentive, eventually those who would be better off in the exchanges will end up there, and costs will soar. If only the 35 million lowest wage-workers leave their job-based plans, federal spending will rise by another $1 trillion in just the first decade.
The history of federal entitlements is one of inexorable growth. Once erected, more and more people get added to the programs. The ACA will be no different. Spending will soar, and the tax hikes and spending “offsets” that were cobbled together to get the bill passed will either wither away or vanish altogether.
Repeal isn’t a budget buster; keeping the ACA is. Assertions to the contrary are, well, audacious.
Mr. Holtz-Eakin is president of the American Action Forum and a former director of CBO. Mr. Antos is Wilson Taylor Scholar at the American Enterprise Institute and a former assistant director at CBO. Mr. Capretta is a fellow at the Ethics and Public Policy Center and a former associate director at the Office of Management and Budget.