If the law isn’t scaled back by 2014, we’re ruined.
Throughout 2009 and early 2010, supporters of the then-pending Affordable Care Act (ACA) argued that health-care reform was necessary to repair the federal government’s untenable fiscal outlook. More than any other factor, it was said, health-care cost inflation was the driving force behind massive projected federal deficits, and comprehensive reforms were required to cure the problem. Unfortunately, when enacted, the ACA worsened federal finances rather than improved them.
The legislation as originally passed would have added at least $340 billion to federal deficits in its first ten years (and over $1.15 trillion to federal spending) and far more in each subsequent decade. This past summer, the Supreme Court threw a wild card into the fiscal picture, striking down the federal government’s power to compel the states to participate in the ACA’s vast Medicaid expansion, while essentially leaving the rest of the law standing.
As a result, depending on policy decisions yet to be finalized by elected officials at all levels of government, the ACA could ultimately prove either far more expensive—or significantly less so—than originally estimated.
The ACA and America’s Fiscal Future
The ACA’s worsening of the federal fiscal outlook is unambiguous but has been poorly understood because of the scorekeeping rules under which the Congressional Budget Office (CBO) operates. Rather than evaluate the effect of the ACA’s literal change in law, as is done with many other areas of the budget, CBO is directed to treat changes affecting Medicare differently. To fully understand this requires some familiarity with the basics of Medicare financing.
Medicare (like Social Security) is only authorized to make benefit payments when there is a positive balance in its trust funds. Lawmakers are on notice that if the Social Security or Medicare Hospital Insurance trust funds face depletion, action must be taken either to increase revenues or slow the growth of payments to avoid a sudden interruption in benefits.
CBO is instructed to disregard this restriction on Social Security and Medicare financing whenever it scores legislation. Instead, CBO is directed to assume that Social Security and Medicare will make full scheduled benefit payments in perpetuity, even though the programs lack the financial resources and statutory authority to do so. This is important not only because this assumption differs markedly from actual law (as CBO publications are careful to acknowledge), but also because it is without historical precedent.
Charles Blahous, a Hoover research fellow, currently serves as one of two public trustees for the Social Security and Medicare Programs.