CBO's Latest Estimate of the Partial ACA Repeal

Kicking off the new year in style, the Congressional Budget Office (CBO) released its latest estimate of the reconciliation bill passed by the Senate that aims to repeal parts of the Affordable Care Act (ACA), updating its numbers to account for the enactment of last year's tax deal. The bill repeals many key provisions of the ACA, including:

• Coverage expansions, including subsidies to purchase private insurance and the Medicaid expansion (starting in 2018);
• Certain other spending changes (such as the Prevention and Public Health Fund and the reductions in Disproportionate Share Hospital payments);
• Individual and employer mandates; and
• Most of the law's tax increases.

The bill goes further than the House reconciliation bill and on net would save more than $315 billion over ten years, or $515 billion when economic effects are included. Its longer-term deficit impact is also more responsible than the House bill; however, it will still eventually add to deficits over the very long run largely because it repeals the Cadillac tax entirely.

Much of the bill's savings accrue from rolling back the ACA's coverage expansions, thereby increasing the number of Americans who would subsequently be uninsured, as CBO has previously detailed.

By repealing the coverage provisions and most of the taxes but leaving most of the ACA's spending cuts in place (primarily to Medicare), the bill results in significant deficit reduction over ten years, especially when the positive economic effects on labor supply and debt are incorporated. The $315 billion/$515 billion of deficit reduction is clearly more than the last estimate of the House reconciliation bill – which left the coverage expansions intact and relied on repealing the mandates for savings – that saved $78 billion over ten years, or $129 billion including economic effects. The Senate bill also takes the longer-term fiscal implications of its policies more seriously.

Nonetheless, the Senate bill's numbers appear to get less favorable further out based on our rough extrapolations of CBO's ten-year numbers. On a static basis, the bill would appear to cost a small amount of money in the second decade; adding in economic effects and interest would make the deficit impact positive in the mid-to-high hundreds of billions range, although the deficit reduction would generally be declining throughout the period. Depending on how CBO estimates the long-term economic impact of the bill, it could start adding to annual deficits as soon as the second decade.

^{Source: CBO, CRFB calculations
Note: Numbers may not add up due to rounding.
*CBO offers little insights on the long-term economic impact, other than it will decline as the legislation adds to the debt. This range reflects the assumption that the economic effect will phase down to $0 on the low-end or continue growing in the early 2020s on the high-end.}

This trend means that the bill could start adding to deficits in the third decade and start adding to debt by the following decade – CBO has previously said that the bill would eventually add to long-term deficits. Granted, this reversal of budget fortunes relies on the assumption that lawmakers allow the Cadillac tax to go into effect as is, a prospect that is increasingly unlikely. But instead of doing away with the tax entirely, they could limit the revenue loss by changing the parameters of the tax (either the threshold level or how it is indexed) or replace it with an alternate policy that has a substantial long-term effect.

Still, the bill as-is produces notable deficit reduction in the first decade and, by our estimate, in the second decade. It would need tweaking to fully comply with budget rules but is a clear budgetary improvement over the House reconciliation bill.