Will the 2010 Health Law Cut the Deficit or Add to It?

By :: April 10th, 2012

In a new study, Chuck Blahous, who is a public trustee for Medicare and Social Security, concludes that the 2010 health law will add at least $340 billion to the federal deficit from 2012-2021. This is contrary to the official estimates by the Congressional Budget Office, which initially figured the Affordable Care Act would reduce the deficit by about $132 billion from 2012-2019.

Who’s right? Who knows? In truth, unknowable and unpredictable changes in overall health costs will dwarf the variation between Chuck’s estimate and CBOs.

However, Chuck makes some important points in his analysis. One, which TaxVox has written about recently as well, is the potential double-counting of increased Medicare payroll taxes.  The 2010 law raises the Medicare levy by 0.9 percent for high-income workers. But, due to CBO scoring conventions, the money it generates appears to both make the Medicare Hospital Insurance (HI) Trust Fund appear more solvent and reduce the general fund deficit.

It can’t simultaneously do both, as Chuck correctly notes. In reality, if the extra tax goes to the general fund to “pay for” health reform, Medicare would be required to reduce its hospital benefits, absent some other new funding source. Chuck argues Medicare would cut benefits. CBO assumes it would not.

Btw, Chuck and TaxVox are hardly the only ones to have raised this issue. Medicare actuary Rick Foster, who is well-known in Washington for calling ‘em as he sees ‘em, has been making exactly the same point since even before the law passed.  My Tax Policy Center colleague Donald Marron, a former CBO director, blogged about it all back in 2009. And CBO itself has been upfront about the oddities of this scoring issue.

For a different take on this, check out Paul Van de Water’s blog at the Center on Budget and Policy Priorities. 

Some of Chuck’s other assumptions are more controversial. For instance, he projects more people will participate in subsidized health exchanges than CBO estimates, and that Congress will hike those subsidies more than CBO projects in future years. He also discounts anticipated revenues from the “Cadillac tax” on high-value health insurance plans by assuming Congress will roll back this levy before it is ever imposed.

He may be right, of course. But he is merely guessing.  CBO at least has the anchor of the actual law to rely on. Chuck is basically expressing an opinion.

And keep in mind that while the spread between the two projections represents real money, it is margin-of-error stuff when it comes to the size of the federal budget and total health spending.  

Is Chuck’s analysis valuable? It is, if only to highlight the uncertainty in these estimates (that CBO has already acknowledged) and to remind us all about the dangers of double-counting.

Predictably, the politicians are ranting about the sign: “The law will lower the deficit…No, it won’t. Yes, it will….” But, as usual, they are missing the real message.

12Comments

  1. Michael Bindner  ::  4:30 pm on April 10th, 2012:

    The more likely issue is whether the stock market will devalue health insurance company stock prices because mandates are inadequate to cover pre-existing condition and community rating reforms. Whether they will or not, if the perception is there, the law will require almost immediate reform to either avert the collapse of the private market or replace it with something more akin to single-payer. Eventually, some kind of payroll tax increase or consumption tax will eventually need to pay for reform of the reform and practically everyone knows it.

  2. Michael Bindner  ::  4:32 pm on April 10th, 2012:

    At the very least, higher taxes will have to pay for averting the “Doc Fix” – both to increase tax financing and to increase the basic benefit of Old Age and Survivors Insurance in order to raise premiums.

  3. rjs  ::  6:56 pm on April 10th, 2012:

    krugman just debunked that:

    http://krugman.blogs.nytimes.com/2012/04/10/another-bogus-attack-on-health-reform/

  4. AMTbuff  ::  2:00 am on April 11th, 2012:

    Aside from the outright gimmicks like CLASS and increasing taxes before the subsidies begin, the law cannot fairly claim to improve the fiscal gap. Its authors greedily grabbed some of the politically easiest tax increases and, rather than applying the revenue to the deficit, they spent it all on a new open-ended entitlement that is certain to vastly exceed its projected cost just as Medicare did. This was beyond irresponsible. They strip mined a crucial financial resource that we will soon need when the government bond market stops lending to us.

    Will the 2010 Health Law Cut the Deficit or Add to It? If you need to ask, you have been overexposed to its proponents’ nonsense. This law will be seen by history as the high water mark for the welfare state fantasy: a wildly unaffordable expansion of government promises on top of previous Ponzi-like entitlement promises.

    People who bought new homes in Las Vegas in 2006 will look omniscient by comparison to Obama and the Democrats in Congress. Political greed blinded them to fiscal reality, and it continues to blind them. They wanted national health care so badly for so long, and this was their one chance to get it. Never mind that the fiscal math doomed the effort long before it began.

    Democrats were willing to take a tiny chance to achieve their political dream at the price of courting outright bankruptcy of the government and collapse of the economy. I find this reckless behavior unconscionable. It’s almost as bad as if Republicans had launched a nuclear first strike during the Cold War. Or the purges conducted in the wake of the French revolution and many other popular revolutions. Ideologues are willing to destroy the country in service of their utopian vision. They deserve our contempt.

    It’s high time the government stopped adding promises and started removing some big ones and prioritizing others. When the current game of musical chairs stops, I want to know that the poorest Americans will find a seat. The middle class needs to be kicked out of the few affordable chairs we have.

  5. Ralph H  ::  9:42 am on April 11th, 2012:

    The law was “worked” to create the illusion of being a money maker, but history and common sense tlls us it will cost much more than advertisd. Like all entitlemntsw do.

  6. Michael Bindner  ::  2:37 pm on April 11th, 2012:

    As well they should. If something makes money, government does not have to do it because the private sector is already doing it. If Medicare could make money, then it would have been unneccessary. The fact was then, and is now, that there are some people not getting good care, or any at all, because of a lack of coverage.

  7. Michael Bindner  ::  2:38 pm on April 11th, 2012:

    Without Medicaid, by the way, Emergency Room care as a right would have never been enacted. The existence of it allows hospitals to eventually get something back in many cases.

  8. clarks  ::  8:44 pm on April 26th, 2012:

    Since their humble beginning back in 1825 Clarks shoes has built upon their reputation for quality by continuously revolutionizing the comfort footwear industry.From their inception,the Clarks brand has been synonymous with comfort,quality and style.Utilizing a wide range of high quality leathers and a surprisingly fresh approach to shoe design,Clarks continues to offer a broad range of fashionable shoe styles for both clarks mens shoes and clarks women shoes.Whether your looking for a casual leather flip flop,a unique slide,or comfortable casual dress shoe Clarks is sure to have the right style for you.

    As always,Clarks uk shoes continues to use only the finest leather,suede and nubuck in each and every shoe.Recently,the introduction of the unstructured series has offered consumers a number of innovative and exciting styles that utilize the Clarks Sandals exclusive Air Circulation System™.The ACS system controls the interior climate of the shoe by allowing warm air to dissipate while cool air is pulled in.Additionally,Clarks sale Unstructured shoes are thoughtfully designed to be softly cushioned and have an exceptionally lightweight flexible construction that allows you to move about more freely and naturally.

    By purchasing a pair of Clarks originals shoes you will be joining a tradition of quality,comfort and style that has stood the test of time.

  9. sale_007  ::  2:50 am on April 27th, 2012:

    Few watch aficionados realize that the Japanese brand seiko watch has a history as old as many of its Swiss rivals. Founded in the 1880s, the company began manufacturing wrist seiko watches after World War I and quickly became an innovative leader, developing one of the world’s first seiko automatic and seiko chronograph. But perhaps Seiko’s greatest achievement came about in its race with the American brand Bulova to harness new technology, leading to the quartz watch, which revolutionized the industry and nearly drove the Swiss out of business.
    More innovations followed, including the first computer wristwatch, in 1984, and the first nonbattery seiko kinetic watch. To this list we can now add another groundbreaker: the Seiko Spring Drive mechanical movement, which is accurate to one second per day, making it approximately three times more precise than the average mechanical watch. The Spring Drive also provides an enduring seventy-two hours of power reserve (most watches offer about forty) and winds 30 percent faster than a conventional movement.
    According to seiko uk, twenty-eight years of work went into developing this movement, and only five of the company’s hundreds of watchmakers possess the requisite skills to assemble it. Regardless of its technological history, the seiko 5 is a skillfully designed watch, with graceful hands and interesting use of off-center dials.

  10. The Fight over Medicare Double Counting « Donald Marron  ::  5:45 am on May 9th, 2012:

    […] leading budget experts, ranging from denunciation to affirmation. See, for example, Jeffrey Brown, Howard Gleckman, Peter Orszag, Robert Reischauer (as quoted by Jonathan Chait), and Paul Van de Water, and a follow […]

  11. Medicare's Peculiar Budget Rules And The Fight Over Double Counting | living-4-less-coupons.com  ::  1:13 pm on May 10th, 2012:

    […] leading budget experts, ranging from denunciation to affirmation. See, for example, Jeffrey Brown, Howard Gleckman, Peter Orszag, Robert Reischauer (as quoted by Jonathan Chait), and Paul Van de Water, and a follow […]

  12. The Sneaky New Way Republicans Could Sabotage Obamacare – GreenEnergy4.us  ::  10:36 am on December 9th, 2014:

    […] (This is the CBO’s most recent estimate.) Conservatives cried foul, saying that the CBO double-counted savings in the law and ignored billions in health care spending in order to make the economic effects of […]