One of the principal objections that has been voiced against the Patient Protection and Affordable Care Act under consideration in the Senate is that it "front-loads" revenues and "back-loads" costs, which will lead to long-term budget deficits. I don't believe that this is an accurate charge, but here is the evidence: judge for yourself.
In its report of November 18, 2009, the CBO estimates that the Senate version of health care reform will substantially reduce the federal deficit over the next decade, and that in the ensuing decade the bill would still lower budget deficits, but only by a small margin. The CBO states:
According to CBO and JCT’s assessment, enacting the Patient Protection and Affordable Care Act would result in a net reduction in federal budget deficits of $130 billion over the 2010–2019 period (see Table 1). In the subsequent decade, the collective effect of its provisions would probably be small reductions in federal budget deficits if all of the provisions continued to be fully implemented. Those estimates are subject to substantial uncertainty.
Table 1 on page 3 of the report shows that between 2018 and 2019 the Senate bill would have the following effects on the federal budget:
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The annual cost of providing health insurance assistance to low income persons and small employers would increase from $123 to $130 billion.
- The annual savings from reductions in Medicare and other sources would increase from $91 to $106 billion.
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The annual revenues generated from increases in the Medicare tax and fees from individuals and employers choosing not to purchase insurance would increase from $31 to $32 billion.
Accordingly, while the bill would cause the deficit to increase in the year 2018 by $1 billion, it would cause it to decrease in 2019 by $8 billion. There is year-to-year variation in the effect of this legislation because different spending and revenue programs "kick in" at different times, but I don't think that it is fair to say that this bill would cause massive deficits either in the short term or in the long term.
Beginning at page 14 of the report, the CBO discusses its estimate of the effect of the bill on federal deficits after 2019. The CBO indicates that savings and revenues should stay ahead of expenditures after 2019:
All told, the legislation would reduce the federal deficit by $8 billion in 2019, CBO and JCT estimate. In the decade after 2019, the gross cost of the coverage expansion would probably exceed 1 percent of gross domestic product (GDP), but the added revenues and cost savings would probably be greater. Consequently, CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.
The CBO also notes that any savings under the bill in future years will be very small in comparison to what the budget deficit will be in light of our current spending habits. We still have to bring the budget deficit down – but at least this bill will not make the problem any worse.
I see no evidence to support the claim that the Senate bill will increase overall deficits in the long-term. To the contrary, as Jeffrey Young of The Hill reported on November 19, the CBO estimate demonstrates that "The Senate health care reform bill could maintain the federal government’s commitment to health care spending over the long run as well as reduce the budget deficit while extending coverage to tens of millions of people …."
It has also been asserted that the provisions of the Community Living Assistance Services and Supports Act (CLASS Act), which is included within the Senate bill, will lead to ballooning deficits in future years. I shall discuss that specific program and the revenue projections associated with it in tomorrow's post.
Visit Professor Huhn's website on health care financing reform for links to information about proposed legislation, studies and reports, public agencies, and private organizations concerned with this issue.
