New study shows ObamaCare will add $340 billion to deficit in first decade

When passing and signing ObamaCare into law, Democrats — including most prominently Barack Obama — insisted that the bill would not inflate already-exploding deficits.  In fact, they claimed, the bill would save money in the first ten years, which was accomplished by a rather transparent staging of taxes and benefits that gave ObamaCare a few years of revenue before any significant outlays.  However, a new study by a trustee for CMS shows that the bill will actually increase deficits by $340 billion in the first ten years, thanks in part to a little-known issue with the shell game ObamaCare plays with those funding mechanisms:

President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study by a Republican member of the board that oversees Medicare financing.

The study is set to be released Tuesday by Charles Blahous, a conservative policy analyst whom Obama approved in 2010 as the GOP trustee for Medicare and Social Security. His analysis challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers.

The 2010 law does generate both savings and revenue. But much of that money will flow into the Medicare hospitalization trust fund — and, under law, the money must be used to pay years of additional benefits to those who are already insured. That means those savings would not be available to pay for expanding coverage for the uninsured.

“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said in an interview. “If one asserts that this law extends the solvency of Medicare, then one is affirming that this law adds to the deficit. Because the expansion of the Medicare trust fund and the creation of the new subsidies together create more spending than existed under prior law.”

Blahous explains the mechanism for this at his own site:

Here’s a simple way to think of it: under law Medicare is permitted to spend any proceeds of savings in the Medicare HI program. If we cut $1 from Medicare HI spending in the near term, then an additional $1 is credited to the HI Trust Fund as a result. The Trust Fund thus lasts longer and its spending authority is expanded, permitting it to spend another $1 in a later year.

A core fiscal problem with the ACA is that the same $1 in Medicare savings that expands Medicare’s future spending authority by $1 is also assumed to finance the creation of a large new federal health program. Taken together, these two expansions of spending authorities – the new health program and Medicare’s solvency extension – far exceed the cost-savings in the legislation.

Many people understood this instinctively when the law was originally debated. They wondered how a law could simultaneously extend the solvency of Medicare, provide subsidized health coverage to 30 million new people, and also reduce the deficit. The answer is that it can’t. The cost-savings of the ACA are insufficient to both extend Medicare solvency and finance a new health program without adding enormously to the federal debt.

The government scorekeeping conventions now in wide use are useful and appropriate for many policy purposes, but unfortunately they do not account for this phenomenon. CBO is diligent in carefully noting that these scoring conventions, dating back to the 1985 Deficit Control Act, do not represent actual law. As CBO states, “CBO’s baseline incorporates the assumption that payments will continue to be made after the trust fund has been exhausted, although there is no legal authority to make such payments.” The scorekeeping convention thus ignores the additional spending authority created when the HI trust fund is extended as occurs under the ACA. Unfortunately, few people read or understand these critical disclosures.

As a result, much of the cost-savings attributed to the ACA is actually not net new savings, but rather substitutions for those required under previous law. Under previous law, Medicare payments either would have been suddenly cut in 2016, or lawmakers would have had to enact other Medicare cost-savings (indeed, perhaps much like those in the ACA). The difference is that under previous law this all would have happened without also creating an expensive new spending program.

This is a more detailed explanation of the “double counting” criticism that arose during the ObamaCare debate over its scoring.  The purported savings from these reforms arguably come to $575 billion over ten years, which was used to fund the Medicaid expansion that Obama used to cover the uninsured.  However, the same savings got applied to extending the life of the Medicare fund, which as Blahous notes, is impossible under the law.  If the funds go to the Medicaid expansion, then Medicare will become insolvent in 2016 and drastic cuts in funding will occur.  If it gets applied to the trust fund, then the federal government will have to spend other funds to expand Medicaid.  It can’t be both, and as the Post notes, even the CBO acknowledged as much in its scoring.

What does the administration have to say in response?  An OMB official told the Washington Post (without going on the record) that Blahous was using “new math” to undermine the credibility of Obama’s reforms, in an attempt “to refight the political battles of the past.”  However, this isn’t about the past at all; it’s about the future of Medicare and the deficit.  The White House response appears to fall into the Pelosiesque “we had to pass it to see what’s in it” category, with the addendum of “and now it’s too late to argue about it.”  We’ll see if that’s true.

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