How Changes to Obamacare Can Cut the DeficitLanhee Chen
March 21 (Bloomberg) -- Republicans in Washington have repeatedly called on President Barack Obama to make changes to the Affordable Care Act as a part of their efforts to deal with long-term budget deficits. Although complete repeal of the law is desirable, such an outcome is impossible in the near-term.
This raises two questions: Should changes to the law be part of current budget negotiations? And, more important, what form should these changes take?
The answer to the first question is yes. The law is a budget-buster, adding almost $2 trillion in new spending over the next 10 years. Calculations based on a recent report by the nonpartisan Government Accountability Office show that the Affordable Care Act could add $6.2 trillion to U.S. deficits over the next 75 years. Many liberal commentators have attacked this conclusion, in part because it came from Republican Senator Jeff Sessions, the ranking member of the Budget Committee.
It’s worth explaining, however, why the GAO report -- and the accompanying calculations -- are fair assessments of the law’s long-term fiscal impact.
The calculations are based on what the GAO terms an alternative fiscal simulation. This scenario predicts fiscal impacts based on certain reasonable assumptions about the future, such as the likelihood of certain cost-containment measures coming to pass.
As written, for example, the law cuts Medicare payments to physicians in such a draconian fashion that, in 2030, the program would pay doctors 60 percent less than private health-insurance plans. Given that Congress has acted to avert other, similar reductions every year for the past decade, it is only reasonable to expect that these cuts would be averted as well. Drastically reduced Medicare and Medicaid payments to hospitals, which the law also assumes, are similarly unlikely.
And the GAO report is hardly an outlier: It notes that other nonpartisan sources, including the Congressional Budget Office, have questioned the assumption that the Affordable Care Act’s cost-containment mechanisms are sustainable.
All this is cause for concern and a reason to overturn the law. But let’s be realistic: Full repeal isn’t happening as long as Democrats control the White House and Senate. So Republicans should focus instead on deficit-reducing changes that Obama and congressional Democrats might actually consider.
The two most expensive and most politically sensitive elements of the Affordable Care Act are subsidies for the purchase of health insurance ($1.2 trillion over the next 10 years) and funding for the expansion of Medicaid ($638 billion). It is unrealistic to expect either of these to be eliminated, but their cost could be reduced.
The law subsidizes the purchase of health insurance for Americans earning up to 400 percent of the federal poverty level. The benefit is means-tested -- that is, the poorest Americans are eligible for the most help. The federal poverty level for a family of four is currently $23,550, so the law would provide subsidies to families with household incomes of more than $94,000 a year. The president and Congress can generate savings by trimming eligibility for the subsidies or putting in place more aggressive means-testing.
Further savings can be had through recapture of any overpayments of subsidies under the law. These overpayments may occur because the subsidies are based on income from a previous year, and a family’s income may rise after it gets a subsidy. The House Ways and Means Committee has already approved provisions requiring the federal government to collect this money, and the president and Congress should do the same.
Another way to extract savings is to delay the law’s full implementation. For example, a delay until 2016 of all its provisions scheduled to take effect in 2014 or 2015 could save taxpayers as much as $200 billion.
Both congressional Republicans and the president can benefit from some delay. For Republicans, delay allows them to keep alive the possibility of full repeal until after the next presidential election. For Obama, a delay would allow more time to set up (and help states set up) health insurance exchanges, the mechanisms through which subsidy recipients would purchase insurance.
Finally, there are several smaller provisions in the law that could be changed to generate savings. A favorite bipartisan target is the law’s Prevention and Public Health Fund, which is nicely named but has paid for seemingly unrelated projects such as the construction of sidewalks and playgrounds. The law originally set aside $15 billion for this fund from 2010 to 2019, but Obama has twice proposed cutting the fund and actually did cut it by $5 billion in 2012.
In short, there are a number of ways the Affordable Care Act can be altered to help with the challenge of deficit reduction. The question is whether President Obama is serious about amending his signature law to help the nation deal with its fiscal challenges.
(Lanhee Chen is a Bloomberg View columnist and a research fellow at the Hoover Institution at Stanford University. He was the policy director of Mitt Romney’s 2012 presidential campaign. The opinions expressed are his own.)
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