Posted by Jeffrey Brown on Apr 10, 2012
Filed Under (Health Care, U.S. Fiscal Policy)
Last week’s U.S. news was dominated by the oral arguments before the Supreme Court of the United States (SCOTUS) on the constitutionality of the Patient Protection and Affordable Care Act (PPACA), also known more succinctly as the Affordable Care Act (ACA), or, simply, “Obamacare.” Most of the news coverage revolved around legal issues, such as how to define a “limiting principle” that would distinguish health insurance from other goods and services. A few of those analyses, including one by my colleague Nolan Miller at the University of Illinois, provided useful economic insights on these legal questions.
But what I have not seen much of – until now – is a careful analysis of the impact of repeal on the federal budget. Yes, there is plenty of rhetoric around this topic, with Democrats arguing that PPACA saved money and Republicans arguing that it created a huge new entitlement. But there has been very little careful analysis.
That changed today, when the Mercatus Center at George Mason University released a meaty new report written by Charles (“Chuck”) Blahous. His analysis shows quite clearly that the Supreme Court now finds itself in the position of having an enormous impact on the long-run fiscal situation in the U.S.
As background, Chuck Blahous is one of two public trustees of the Social Security and Medicare trust funds, having been appointed to this post by President Barack Obama and confirmed by the U.S. Senate. Previously, Chuck served all eight years of the G. W. Bush administration at the National Economic Council. After spending over two decades in both the legislative and executive branches of the U.S. government, Chuck knows the ins and outs of federal budgets. He is also widely respected on both sides of the aisle as a serious policy analyst.
In a nutshell, here is what Chuck’s careful analysis finds:
- PPACA is expected to increase net federal spending by more than $1.15 trillion over the next decade.
- PPACA is likely to add more than $340 billion, and perhaps as much as $530 billion, to federal deficits over the next decade.
- Despite these realities, government scorekeeping rules lead to deep confusion over the fiscal impact, and have the effect of making PPACA appear less expensive than it really is.
How can this be? In part, the law “relies upon substantial savings already required under previous law to maintain the solvency of the Medicare Hospital Insurance (HI) Trust Fund. These do not represent new net savings … but substitutions for spending reductions that would have occurred by law in the absence” of this act. There are other issues at play as well.
All of this is “public,” in the sense that it has been disclosed in scoring documents by the Congressional Budget Office (CBO). But the CBO is constrained to report the effect of government tax and spending programs according to various scoring rules – even when those rules deviate substantially from the likely political or economic reality. Skilled politicians have learned to use these scoring rules to their advantage.
As Chuck points out in his paper:
“A full understanding of the ACA’s budget effects requires appreciation of the distinction between two important points:
- CBO found that the ACAD would reduce federal deficits when a specific scoring convention was applied;
- The same analysis shows implicitly that the ACA would substantially increase federal deficits relative to previous law.”
The paper is over 50 pages in length (including the helpful Q&A in the appendix), but is well worth a read if you want to know the details behind the calculations.
But if you don’t have time to read it, here is the bottom-line: “Taken as a whole, the enactment of the ACA has substantially worsened a dire federal fiscal outlook. The ACA both increases a federal commitment to health care spending that was already unsustainable under prior law and would exacerbate projected federal deficits relative to prior law. This is an unambiguous conclusion …”
Were the Supreme Court to strike down all or part of this Act, we should view it as an opportunity to revisit health care reform in a way that reduces, not increases, public spending.