With the House of Representatives scheduled to vote next week on repealing the new health care act, the Congressional Budget Office has announced that eliminating the 2010 health care law, the program that would insure another 32 million people, would cause the deficit to increase by $230 billion over the next decade.
Last year, the CBO came up with the absurd finding that the act would reduce future budget deficits. Just as that projection lacked credibility, so does the inverse, that repeal would expand future deficits.
CBO Director Douglas Elmendorf explained that the health care act included Medicare spending cuts and increased revenues from raising taxes.
If the act were repealed, Elmendorf wrote in a letter to House Speaker John Boehner, “such reductions in spending and increases in revenues would not occur,” and federal deficits would increase.
But the spending cuts and tax revenues are unlikely to occur. It strains belief that Congress will cut $500 billion from Medicare outlays over the next decade.
Recall that last year Congress was supposed to cut physician reimbursement rates for Medicare by 21 percent in June. The cuts were postponed until November. Then, in December, Congress rescinded the cuts again, and voted to delay a 25 percent cut until the end of 2011.
Now the 25 percent cut is due to take effect in 2012, to be followed by further cuts in 2014. Congress will undoubtedly postpone future cuts because they would lead to a shortage of doctors for Medicare patients.
The health care law will also have greater expenses than projected, as employers drop health coverage and their employees are forced to buy government-subsidized policies. Each additional person with government-subsidized premiums raises taxpayers’ costs. Douglas Holtz-Eakin, Elmendorf’s predecessor, concluded in an article in Health Affairs that the new law, rather than reducing the deficit, would increase it by more than $500 billion over 10 years and by $1.5 trillion in the decade afterwards.
Holtz-Eakin believes that the excise tax on expensive plans, due to take effect in 2018, will not be politically possible. Congress will back away from the tax, just as it delayed its effective date from 2013 to 2018 after fierce objections from unions.
The CBO hasn’t even computed the increased cost of health insurance to enrollees as younger, healthy Americans choose to pay the fine of $695 or 2.5 percent of taxable income in 2016 (whichever is less) and legally opt out of insurance. Companies will find themselves insuring a sicker population, and will raise rates, taking a bigger chunk of some paychecks and driving others to pay the fine.
The level of health insurance premiums doesn’t have to be incorporated into CBO estimates, because it’s neither a tax nor paid by the federal government. In 2019, in addition to $20 billion in excise taxes, Americans would be paying over $100 billion in higher premiums because Congress required an overly generous plan, with no copayments for routine care, and unlimited lifetime coverage.
With the CBO’s recent logic, we could reduce the deficit by passing new entitlement programs, and solve the whole budget problem by passing new programs every day of the year. But Americans aren’t fooled.
Examiner columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.