NCPA - National Center for Policy Analysis

Health Care Law Will Add $340 Billion to Deficit

April 11, 2012

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, says the Washington Post.

The study, by Charles Blahous, a senior research fellow at the Mercatus Center and public trustee for Medicare and Social Security, 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.

Medicare is financed in part through a trust fund that receives revenue from payroll taxes.  

  • Before Obama's health care act passed, the trust fund was projected to be drained by 2017 (later updated to 2016).
  • Absent the health care law, Blahous writes, Medicare would have been forced to enact a sharp reduction in benefit payments in the middle of this decade, or "other Medicare savings would have had to be found."

Enter the health care law, which provides about $575 billion in Medicare savings -- enough to automatically extend the life of the trust fund through 2029, according to estimates at the time, and avoid a sharp cut in benefits.

  • But in cost estimates by the nonpartisan Congressional Budget Office (CBO), those savings also offset a dramatic expansion of Medicaid under the law, as well as new subsidies for uninsured people to purchase coverage.
  • And in 2010, the CBO wrote that, absent the Medicare savings, the law would increase deficits by $226 billion through 2019 -- instead of decreasing them by the commonly cited $132 billion.

In arriving at his deficit figure of $340 billion, Blahous updates the numbers through 2021 and subtracts savings that would have come from another provision of the law: the CLASS Act, a long-term care program that was supposed to have generated as much as $86 billion in new revenue through 2021 but has since been abandoned by the administration.

Source: Lori Montgomery, "Health Care Law Will Add $340 Billion to Deficit, New Study Finds," Washington Post, April 9.  Charles Blahous, "The Fiscal Consequences of the Affordable Care Act," Mercatus Center, April 10, 2012.

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