New Data Deliver Good News for Health Care and Bad News for Speaker Ryan’s Tax Reform Plan

The following article by Harry Stein and Alex Rowell was posted on the Center for American Progress website March 30, 2017:

Shortly after Congress’ failed attempt to repeal the Affordable Care Act, or ACA, new budget data confirm the sustainability of the federal government’s major health care programs. These budget data also illustrate a major hurdle for the tax reform plan advocated by House Republican leaders. This new information comes from the Congressional Budget Office, or CBO, and it includes updated projections for the cost of federal programs; tax revenue levels; budget deficits; and economic variables such as gross domestic product, or GDP.

The projected costs of federal health care programs have fallen dramatically since the passage of the ACA. Despite false claims to the contrary, federal health programs are not facing a “death spiral” of exploding costs. The United States has more than enough economic capacity to continue to sustain these programs in the future; repealing the ACA would have instead used American economic capacity to cut taxes for the wealthy.

The ACA included significant reforms to slow the growth of Medicare spending, and overall cost growth in the health care system has also declined in recent years. As a result, over the 10 years from 2018 to 2027, Medicare spending is projected to be roughly $2.3 trillion lower than the CBO initially estimated in 2009, before the ACA’s passage. Due to the lower anticipated cost growth in the long term, savings are projected to grow even larger in future years.

The ACA increased health insurance coverage through a variety of means, including expanding Medicaid access and creating health insurance exchanges where individuals could purchase subsidized health insurance. The latest CBO estimates show that spending on Medicaid and the Children’s Health Insurance Program, or CHIP, along with the ACA health insurance subsidies, is actually projected to be lower than anticipated in the estimates the CBO published in 2010, shortly after passage of the ACA. Some of this is due to lower enrollment due to unanticipated events such as the U.S. Supreme Court allowing states to opt out of Medicaid expansion. But it is also due to lower costs per enrollee in Medicaid, CHIP, and the nongroup market, compared with what the Centers for Medicare & Medicaid Services projected in 2010. From 2018 to 2027, the CBO projects that spending on these programs will be $1.4 trillion lower than it initially projected in 2010.

So with federal health care programs costing less than expected, why did President Donald Trump and Congress try rushing to repeal the ACA? They were looking ahead to tax reform, and repealing the ACA would make it easier to cut taxes for the wealthiest Americans as much as possible—by paying for these tax cuts with cuts to health insurance coverage.

Speaker of the House Paul Ryan (R-WI) lamented that the failure of ACA repeal makes his tax reform plans more difficult. Repealing the taxes in the ACA is a major cost in the House Republican “A Better Way” tax reform plan—a plan that gives the highest-earning 1 percent of households 99.6 percent of the tax cuts in 2025. If Congress wants to pass tax reform using the budget reconciliation process, which can be done with a simple majority in the Senate instead of 60 votes, then tax reform cannot increase long-term deficits. If Congress had successfully repealed the ACA, then the revenue baseline in the CBO’s new long-term budget outlook would be significantly lower. This means that Congress could pass a tax reform bill that raises far less revenue—which means more tax cuts for the wealthiest Americans—because this tax reform bill would be measured next to a lower baseline.

Lowering the revenue baseline in the CBO’s long-term budget outlook would hide the fact that the United States has more than enough economic capacity to sustain Medicare, Medicaid, CHIP, and the ACA, along with other vital programs for low- and middle-income Americans such as Social Security. The CBO’s long-term budget outlook shows the national debt increasing over time, and one reason is rising costs for federal health care programs. But as shown above, federal health care spending is now projected to increase by less than the CBO projected during the time that the ACA was debated and enacted. The CBO’s new report also says that the debt could be stabilized as a share of GDP with policy changes that reduce annual budget deficits by 1.9 percent of GDP.

The United States is currently the fifth-lowest-taxed country out of the 35 advanced economies ranked by the International Monetary Fund, or IMF. If the United States stabilized its national debt as a share of GDP with only tax increases, it would still be the sixth-lowest-taxed country on that list. This tax increase could be smaller if combined with spending cuts, but there is no need to dismantle programs such as Medicare, Medicaid, or the ACA.

During the House’s consideration of the American Health Care Act, which would have repealed the ACA, analysis from the CBO was vital for understanding how the bill would lead to higher costs, less coverage, and tax cuts for the wealthy. With its new long-term budget outlook, the CBO has once again provided vital information for the health care and tax reform debates.

Some politicians still want to repeal the ACA, make huge cuts to Medicaid, and turn Medicare into a voucher program—claiming that doing so is necessary to avert a “fiscal crisis.” Those politicians are certainly entitled to their own opinion, but they are not entitled to their own facts. Federal health care programs now cost less than previously projected, and the savings grow larger over time. There is no fiscal requirement to dismantle federal health care programs, but some politicians may claim otherwise to smooth the way for larger tax cuts for the wealthiest Americans.

View the post here.