Study Says PPACA Will Add to Deficit

Charles P. Blahous (RON EDMONDS AP)Charles P. Blahous (RON EDMONDS AP)

A new study released today argues that the healthcare reform law passed in 2010 will likely add at least $340 billion to the federal deficit, with increasing amounts thereafter.

The study argues that the fiscal impact of the Patient Protection and Affordable Care Act (PPACA) is often misunderstood because government budget rules contrast with enacted law.

The study was prepared by Charles Blahous, a research fellow at the Mercatus Center, which is associated with George Mason University, based in northern Virginia.

Blahous, is a former economic adviser to George W. Bush on retirement security issues and deputy director of the National Economic Council.

The White House and Democrats in Congress immediately blasted the study. “We are reading about another brand of ‘new math’ in describing how the Affordable Care Act will affect our nation’s Federal budget deficit,” said Jeanne Lambrew, deputy assistant to President Obama for health policy.

“In another attempt to refight the battles of the past, one former Bush Administration official is wrongly claiming that some of the savings in the Affordable Care Act are ‘double-counted’ and that the law actually increases the deficit,” Lambrew said. “This claim is false.”

Blauhouse was appointed in 2010 by President Obama as a Republican trustee for Medicare and Social Security.

While the Mercatus Center styles itself as “the world’s premier university source for market-oriented ideas,” it is primarily funded by the Koch family, which funds conservative groups, including the American Legislative Exchange Council (ALEC) that promotes the passage of laws aimed at suppressing voter registration in Florida, and “stand your ground” policies.

Last week, Coca-Cola and Kraft announced plans to pull out of ALEC, its activities are pressuring other large companies, such as Walmart, to do the same. The two companies did so because ALEC is championing the Florida “Stand Your Ground” law because of the Trayvon Martin case.

Key points in Blahous’ paper:

  • The ACA’s fiscal effects are often misunderstood because government scorekeeping conventions contrast with enacted law. 
  • The ACA 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, available to be spent without widening the deficit, but substitutions for spending reductions that would have occurred by law in the absence of the ACA.
  • These cost-savings provisions have the effect of extending and expanding Medicare’s future spending authority. The ACA also uses the same cost-savings to finance new health entitlement spending.
  • The ACA’s total new spending thus well exceeds its cost-savings provisions.
  • This is not a mere matter of presentational “double-counting” but of evaluating the actual change in law upon the ACA’s enactment.
  • By law, as distinct from prevailing scoring conventions, the ACA has unambiguously worsened the federal government’s fiscal position.
  • Moreover, several of the ACA’s provisions may not be enforced as currently specified. Among these, the costs of new health exchanges may be significantly higher than projected; the rising projected revenues of provisions such as the “Cadillac-plan” tax and the new 3.8-percent surcharge on incomes over $200,000/$250,000 may not fully materialize; the cost-saving recommendations of IPAB might be legislatively overridden; and the CLASS program—previously scored as saving $70-$86 billion over its first 10 years—is no longer expected to be implemented.

By contrast, according to according to Lambrew, official administration and congressional budget “scorekeepers” say PPACA will reduce the deficit because its costs “are more than fully paid for.”

She cited Office of Management and Budget and Congressional Budget Office (CBO) documents that project lower federal budget deficits as a result of the law.

She said that the “CBO and JCT estimate that enacting both pieces of legislation—H.R. 3590 and the reconciliation proposal—would produce a net reduction in federal deficits of $143 billion over the 2010–2019 period as result of changes in direct spending and revenues.”

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