NCPA - National Center for Policy Analysis

Health Care Law Causes United States to Reach Debt Limit More Quickly

February 22, 2011

The hottest economic policy issues now facing the White House and Congress include government spending levels, the statutory debt limit extension and efforts to "repeal and replace" last year's health care law.  Largely overlooked in the public debate, however, has been the close relationship between the last two of these issues, says Charles Blahous, a research fellow with the Hoover Institution.

The new health care law causes us to reach the debt limit more quickly because of the law's double-counting of Medicare savings.

  • The recently enacted health care law used savings in the Medicare program to finance a new federal health entitlement.
  • But at the same time, the government claimed that the Medicare savings produced an extension of Medicare solvency, in turn reflected in the issuance of more debt to the Medicare Trust Fund.
  • In effect, the savings were double-counted -- once as a means of offsetting the costs of the new entitlement, a second time as a means of financing future Medicare benefits.

This double-counting means that Trust Fund debt rises more than public debt would fall -- and consequently, that the gross debt subject to limit rises, says Blahous.

Source: Charles Blahous, "Why the Health Care Law Increases the Gross Federal Debt," Economics for the 21st Century, February 16, 2011.

For text:

http://economics21.org/commentary/why-health-care-law-increases-gross-federal-debt

 

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