ADDITIONAL RESEARCH, TESTIMONIES, AND ANALYSIS
House Budget Committee Chairman Paul Ryan has a plan to save Medicare and Medicaid from going bust. In his 2013 House Budget Plan released yesterday, he outlines the steps needed to ratchet down the federal government’s egregious spending habit. By simplifying the tax code and reforming health care safety net programs, he sets America on a sustainable path forward; an audacious goal compared to the President’s weak-kneed attempt at a federal budget.
The Congressional Budget Office (CBO) released their updated cost estimates for the Affordable Care Act (ACA) yesterday, just in time for the health reform law’s second anniversary. New legislation, a poorer economic outlook, as well as technical changes combine to lower the estimated net cost of the ACA by $48 billion compared to the March 2011 estimate. At first glance, the reduced cost of the ACA seems like good news; however, the reduced costs are largely a result of increased penalty payments from the uninsured and employers along with other tax revenues.
A “national moment of truth.” That’s how President Obama’s fiscal reform commission characterized the state of the nation’s finances over one year ago. Last year, the President kicked the commission’s bipartisan proposals into the gutter, put out a budget drenched in red ink, and was greeted with such outrage that he quickly gave speech that many dubbed a budget “do-over.”
The President was legally required to submit a Fiscal Year 2013 Budget last Monday, February 6th. However, its arrival will be a week late…so for the time being, we are going to use this opportunity to look back at the role Medicare, Medicaid and the Affordable Care Act (ACA) played in last year’s unsuccessful Presidential Budget, and what Obama should include in this year’s proposal.
Yesterday, the Congressional Budget Office (CBO) published their 10 year budget outlook. This report estimates how expenditures and revenues change over the next 10 years. In this report, the CBO projected two different scenarios. One scenario is the baseline scenario, which is ultimately unrealistic with the current policy environment, but is the best possible representation of the current law. Although the baseline scenario is unlikely, it allows CBO to break up the projected costs in a more accurate way. The CBO described the Alternative Fiscal Scenario by saying, “Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does.” (Sep. 2011 report) Despite not allowing the CBO to provide detailed breakdowns of their projections, the Alternative Fiscal Scenario still provides the most realistic overall picture. In the case of the alternative fiscal scenario, by 2022, debt held by the public would reach 94 percent of GDP (Figure 1).
The super committee announced this week that it failed to find the required $1.2 trillion dollars in cuts over the next decade to reduce the deficit. The result of their failure is “sequestration,” the triggered spending ax that was supposedly so horrible that it would motivate the super committee to bridge their differences and come to an agreement in order to avoid it, will now go into effect January 1, 2013. While members of Congress may want to change course and avoid sequestration, President Obama announced that he would veto any “easy out” attempt to avoid the triggered cuts.
The federal government is being confronted with many fiscal challenges. The current deficit is a result of several forces, including the United States financial crisis and the recent recession, as well as financial uncertainty overseas. The slow pace of the U.S. economic recovery is generally consistent with similar experiences faced throughout the world following financial crisis. The future of the national deficit and debt will depend on the strength of the economic recovery, in addition to policy changes implemented by the federal government. Many of those changes will be based on reforming the structure of and payments for the healthcare system, as federal costs related to health and the Department of Health and Human Services (HHS) exceed all other departments.
In this testimony, Doug Holtz-Eakin makes four major points. First, the mandates and tax provisions in the PPACA will have detrimental impacts on employment growth, wages, and economic growth. Second, the impact of PPACA will be more expensive health insurance, putting employers in the position of reduced wage rates, fewer employees, or dropping insurance coverage. Third, the PPACA has strong incentives to drop health insurance coverage, and to the extent that employers pursue these incentives, taxpayers face tremendous upside risk to the cost of the PPACA. Fourth, even without unexpectedly large numbers of employers dropping coverage, the PPACA will exacerbate an already-dangerous fiscal outlook.
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. 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.
American Action Forum President Doug Holtz-Eakin expressed five major points in his testimony. First, at a time when sound policy requires low taxes and reductions in present and future transfer spending, the ACA moves dramatically in the wrong direction. Second, the mandates and tax provisions in the ACA will have detrimental impacts on employment growth, wages, and economic growth. Third, the impact of the ACA will be more expensive health insurance putting employers in the position of reduced wage rates, fewer employees, or dropping insurance coverage. Fourth, the ACA has strong incentives to drop health insurance coverage, and to the extent that employers pursue these incentives, taxpayers face tremendous upside risk to the cost of the ACA. Fifth, even without unexpectedly large numbers of employers dropping coverage, the ACA will exacerbate an already-dangerous fiscal outlook.
The Affordable Care Act (ACA) is an impediment to economic growth and federal fiscal balance, threatening nearly 700,000 jobs and increasing the deficit by nearly $300 billion in the near term. At a time when too many Americans remain unemployed and the country faces a daunting budgetary outlook, alternative approaches to health care reform would be preferable.
The American Action Forum released a letter signed by 200 economists and other experts from across the country supporting full repeal of the new health care law. To promote job growth and help to restore the federal government to fiscal balance, we, the undersigned, feel that it would be beneficial to repeal and replace the Patient Protection and Affordable Care Act (P.L. 111-148). Too many Americans remain unemployed and the United States faces a daunting budgetary outlook. We believe the Patient Protection and Affordable Care Act is a threat to U.S. businesses and will place a crushing debt burden on future generations of Americans.
This brings us to what a repeal vote is about: real health care reform. In January 2009, all sides agreed that the central tenet of health care reform was to control the growth of health care spending. And it is now well understood that the health law fails this test, as witnessed by the findings of dispassionate experts ranging from the Congressional Budget Office to the Obama administration's actuary. So, with the overhaul's framework, the health care cost spiral will continue. Repeal is about moving to reforms that will control costs.
While we applaud the Chairs’ initiative and efforts to reduce future federal outlays, we feel their proposals ultimately fail to provide an adequate plan for the fiscal future, especially for the unsustainable rise in federal health care costs. We believe that the proposals can contribute to the ongoing budget debate, but are not a roadmap. To help inform the healthcare budget discussion, we outline below the good, the bad, and the ugly policy prescriptions in the co-chairs proposal.
Applying the same evaluation methods to score a straight repeal of the ACA again requires accounting for the same budget gimmicks used by the law's framers to manipulate the CBO's estimate. When these measures are stripped, a different picture emerges: Repeal would lower, not raise, the federal deficit by $279.7 billion in the first 10 years.