A Project of The Annenberg Public Policy Center

A ‘Budget-Busting’ Law?

Republicans and Democrats both misrepresent the fiscal effect of the health care law.


Summary

The nonpartisan Congressional Budget Office states that repealing the health care law would worsen the federal deficit over the next 10 years — by $230 billion.

So how does the House Republican Leadership support its claim that the law itself is "budget-busting" and would add $701 billion to the deficit? And how does Democratic Rep. Nancy Pelosi justify claiming it will "save taxpayers $1.3 trillion"? Both sides are spinning shamelessly.

We judge that CBO’s projection, which is both official and nonpartisan, is the best available. But even that estimate is uncertain, as the agency itself concedes. For one thing, there is doubt about whether all of the Medicare savings in the law will actually materialize. Those reductions are supposed to offset part of the law’s new spending, but they could put too great a burden on hospitals.

Pelosi’s $1.3 trillion claim is deceptive. She’s projecting CBO’s estimate 20 years into the future, something the agency says is an imprecise and uncertain calculation. Furthermore the law raises taxes to pay for much of its new spending, so saying it "saves taxpayers" anything is misleading. Her figure is actually a reduction in the projected federal deficit.

As for the GOP’s claim that "the bill would add over $700 billion in red ink over the next decade," we judge it to be mostly bogus.

  • It rests largely on a claim that hundreds of billions of dollars in projected Medicare savings are being "double-counted." But CBO is simply not doing that.
  • The GOP’s $700 billion figure also includes more than $200 billion for a permanent "doctor fix" to prevent a cut in Medicare payments to doctors. But that is not even a part of the new law, and many Republicans endorse the "doctor fix" anyway.
  • The GOP claims the law will cost $115 billion to administer, but that isn’t true. CBO actually puts those costs at roughly $10 billion to $20 billion over the next 10 years.

Analysis

In our Jan. 7 article we showed how House Republicans are misrepresenting facts to support their claim that the new law is a "job-killer." We said the truth is that the law is expected to have only a small effect on employment, including fewer low-wage jobs but also more jobs in health care and the insurance industry. We promised then that we would address at a later date the GOP’s claim that the law is also "budget-busting." Here we go.

The Official Score

Let’s start with the official, nonpartisan analysis issued by the CBO on Jan. 6. The agency said repealing the new law would produce a large change in the deficit, but not in the direction Republicans claim. CBO said repeal would "likely" cause "an increase in the vicinity of $230 billion." That’s for the 10 years ending in 2021. It follows that leaving the law in place will reduce the deficit by $230 billion, according to CBO’s official scoring.

There’s reason to believe that the $230 billion figure is too high — though it’s not the fault of the CBO. It’s because some provisions of the law may not end up being implemented. Some unknown portion of the claimed savings from Medicare may never materialize.

The law calls for new restraints on the future growth of Medicare payments to hospitals, skilled nursing facilities, home health agencies and other non-physician providers. Richard Foster, the chief actuary for the Centers for Medicare & Medicaid Services, has estimated that these restraints alone would cover $575 billion of the law’s new spending over 10 years. (Foster’s figure is for the decade ending in 2019, and would be larger if it were adjusted to bring it in line with CBO’s 2021 figure.)

But Foster wrote in a report last April that it "may be unrealistic" to assume that all the savings would actually be realized. That’s because Foster’s computer simulations suggest that roughly 15 percent of hospitals and other such providers would become unprofitable under the restraints. "Although this policy could be monitored over time to avoid such an outcome, changes would likely result in smaller actual savings than shown here for these provisions," Foster wrote. He noted that Congress had overridden similar restraints on Medicare payments to physicians (enacted in 1997) for each of the seven years prior to his report. Congress has continued to put off those doctor-payment cuts since then.

So — should Congress in the future do for hospitals what it has consistently done for physicians — the law will result in less Medicare savings than currently projected. How much less, and whether or when that might happen, is impossible for us to predict.

Dems Also Exaggerate

This uncertainty in what may happen to provisions of the law in the future also casts doubt on the Democrats’ boast that the law reduces the deficit by $1.3 trillion. That’s the figure Rep. Nancy Pelosi used on Jan. 5, when she was passing the gavel to new Speaker John Boehner. Pelosi claimed the law "will save taxpayers $1.3 trillion."

She extrapolated that number from the CBO’s analyses, but the agency didn’t actually use that specific figure. As we said, CBO estimated the law would reduce the deficit by $230 billion over the 2012-2021 time period. For the following decade, CBO was less concrete, saying that the law (coupled with the reconciliation legislation that was passed with it) would reduce the deficit by "a broad range around one-half percent of gross domestic product."

The Democratic staff of the Ways and Means Committee calculated what 0.5 percent of the estimated gross domestic product would be over a second 10-year period, coming up with a 20-year total of more than $1.3 trillion.

But CBO has couched its second-decade estimates in all kinds of language about the uncertainty of projecting budget effects that far into the future. In a March 2010 analysis, it said: “Those longer-term calculations reflect an assumption that the provisions of the reconciliation proposal and H.R. 3590 are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.” Several provisions, in particular those Medicare payment reductions, “might be difficult to sustain over a long period of time,” CBO said.

The bottom line: Only time will tell if those kinds of savings will materialize. “The long-term budgetary impact could be quite different if key provisions of the legislation were ultimately changed or not fully implemented,” CBO said.

‘Double-Counting’?

Now for the Republican claims. In its report, "Obamacare, a Budget-Busting, Job-Killing Health Care Law," the GOP leadership relies on a partisan analysis by the House Budget Committee’s Republicans, and states that the law will add $701 billion to the deficit in its first decade. That analysis can be found on the Budget Committee’s website, where the committee lists several alleged "gimmicks" that it says Democrats have used.

The biggest alleged "gimmick" in dollar terms is this: "Democrats claim they are extending solvency of Medicare by cutting $398 billion from the program, but they simultaneously claim that these savings will offset new subsidy programs." Republicans claim Democrats are "double-counting" that amount. But whatever spin Democrats may be using to promote their legislation, the fact is that the CBO is not double-counting this money. Even Republican Rep. Paul Ryan of Wisconsin, the new chairman of the Budget Committee, conceded that in an interview with the Washington Post‘s public policy columnist Ezra Klein last year.

Ezra Klein, March 4, 2010: When CBO says the bill will save this much money, it really will, at least according to the best estimates.

Ryan: I’m not disagreeing with that. But I think CBO is omitting other fiscal effects that are not in the bill.

Ryan argues that the law obligates the government to pay benefits in the future that aren’t being funded today: "We’re increasing obligations and we’re not setting aside those dollars for those programs," he told the Post‘s Klein. But his website’s analysis goes too far when it claims that these "double-counted" savings will add to the deficit "over the next 10 years." That’s just not true.

The best explanation we’ve seen of the conservative’s "double-counting" argument is in a Reason article faulting the Obama administration (not the CBO) for claiming that the savings both reduce the deficit and extend the life of the Medicare trust fund until 2017. But whether or not the administration is overstating its case about the Medicare fund, CBO is not counting these savings twice. The simple fact remains that the savings will reduce the federal deficit over the next 10 years, according to CBO’s official budget analysis.

‘Doctor Fix’

House Republicans argue that the cost of avoiding a scheduled 21 percent reduction in Medicare payment rates to physicians should be charged against the health care law. But this so-called "doctor fix" has nothing to do with the law.

In fact, the "fix" is designed to roll back the effects of a 1997 provision in the Balanced Budget Act passed by a Republican-controlled Congress and signed by Democratic President Bill Clinton. It’s known technically as the "sustainable growth rate payment formula" or SGR. For the past eight years, Congress already has enacted a series of temporary "fixes," rather than face the possibility that more doctors will start refusing to take Medicare patients.

In early versions of their legislation, Democrats proposed a permanent "doctor fix" as part of the health care law, but they took that out before final passage. The CBO estimates the cost over 10 years would be $208 billion. But it’s not a cost of the health care law.

The GOP’s Budget Committee argues that it should be, because "Democrats … promised doctors that they would enact the fix later." That’s misleading. Both parties want the fix enacted, as Ryan himself conceded in his interview with the Post’s Klein:

Ryan, March 4, 2010: Oh, yeah! I think we should fix the thing. Don’t get me wrong.

So it is true that a permanent "doctor fix" may add $208 billion to the deficit over the next 10 years, if and when enacted. But that won’t be a result of the new health care law, and it’s something Ryan himself favors anyway.

Administrative Costs

The GOP’s analysis claims $115 billion in administrative costs are being ignored, and should be added to the cost of the new law. But that’s a serious exaggeration, and it distorts what CBO has said.

The GOP analysis claims that "the cost of setting up and administering the massive overhaul" will require discretionary appropriations that "would add $115 billion to the bill’s ten-year cost." It cites a CBO letter from last May. That letter did give a $115 billion figure, but the number covers a lot more than the added administrative costs.

As CBO made quite clear only two days later, that figure includes "many items whose funding would be a continuation of recent funding levels for health-related programs or that were previously authorized." In other words, it is money that would be authorized with or without the new law — including $39 billion for the Indian Health Services, $9 billion for the National Health Service Corps and nearly $3 billion for a program to develop the nursing workforce. Those are programs that already get funding every year. CBO estimated that the amounts the law authorizes for all those existing items is more than $86 billion.

As for the rest, it does include some amount for added administrative costs. CBO most recently estimated that those fall roughly between $10 billion and $20 billion over the next 10 years.

CBO, Jan 6: By CBO’s estimates, repeal of the health care legislation would probably reduce the appropriations needed by the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Similar savings would accrue to the Department of Health and Human Services.

CLASS Act

Another claimed "gimmick" is a provision of the law called the "CLASS Act," a voluntary insurance program aimed at caring for the elderly in their own homes rather than in nursing homes. CBO says (see page 114) that this will reduce the deficit by $72 billion during the first decade, by taking in more in premiums than it will spend in benefits. And it will continue to reduce the deficit in the following decade.

So how is this a "gimmick"? CBO goes on to say that the program would indeed lead to increased deficits once benefit payments start to increase. But that won’t be until sometime in "the decade following 2029," and even then by only a relatively "small" amount (which CBO does not attempt to quantify).

Republicans do have a point here. Foster, Medicare’s chief actuary, has said there is "a very serious risk that the program would become unsustainable" if premiums are paid only by older, sicker persons who think they will soon need benefits. So there is reason to think that the CLASS Act will become a drag on the budget at some point in the distant future. But the truth is that CBO estimates the CLASS Act will reduce the deficit for at least the next 20 years.

–by Brooks Jackson, with Lori Robertson

Sources

Elmendorf, Douglas W. Letter to Speaker John Boehner. U.S. House of Representatives. Congressional Budget Office. 6 Jan 2011.

Elmendorf, Douglas W. Letter to Speaker Nancy Pelosi, U.S. House of Representatives. Congressional Budget Office. 20 Mar 2010.

Republican House leadership. "Obamacare: A Budget-Busting, Job-Killing Health Care Law." 6 Jan 2011.

"The Budgetary Consequences of the President’s Health Care Overhaul," House Budget Committee Republicans, Web page accessed 19 Jan 2011.

Klein, Ezra "The true cost of the health-care bill, cont’d: An interview with Rep. Paul Ryan" Washington Post website. 4 Mar 2010.

Suderman, Peter "Obama Administration Doubles Down on ObamaCare Double Counting" Reason.com 2 Aug 2010.

Elmendorf, Douglas W. Letter to Rep. Paul Ryan, U.S. House of Representatives. Congressional Budget Office. 19 Mar 2010.

Elmendorf, Douglas W. Letter to Rep. Jerry Lewis, U.S. House of Representatives. Congressional Budget Office. 11 May 2010.

Congressional Budget Office, "Selected CBO Publications Related to Health Care Legislation, 2009-2010" Dec 2010.

Foster, Richard S. "Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as Amended" U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, 22 Apr 2010.