A Lively Debate on the Affordable Care Act

Yesterday, Medicare trustee Charles Blahous and former chief economist for Vice President Biden Jared Bernstein had a debate about the fiscal consequences of the Affordable Care Act (ACA). The event, hosted by e21 at the National Press Club, discussed Blahous's recent paper on the ACA that claimed the law would increase the deficit, contrary to CBO projections. Their main disagreement essentially boils down to which baseline to use to evaluate the legislation.

Blahous argued that the ACA is expected to increase net federal spending by more than $1.15 trillion, and to add more than $340 billion and as much as $530 billion to federal deficits over the same period, and increasing amounts thereafter. Blahous blamed the failure of ACA on government scorekeeping methods, which compare the effects of legislation to a hypothetical baseline scenario rather than to enacted law. His paper claimed that ACA is not a solution at all since although it appears to reduce federal deficits, it adds to total health care spending and thus "would result in future generations being subjected to tax burdens far higher than previous American generations have ever tolerated."

The ACA, he argued, relies upon substantial savings that would mostly already occur under prior law when Medicare Part A's Hospital Insurance (HI) Trust Fund runs out. To the extent that these reductions would have occurred already within the budget window--Blahous claimed that it is $590 billion of the $850 billion of ACA savings--these do not represent new net savings, but substitutions for spending reductions that would have occurred by law even in the absence of the ACA.

Bernstein responded by saying that the reason Blahous gets a different answer than CBO is that his numbers used a "funky" baseline, which assumes that Medicare and Social Security don’t meet obligations once their trust funds run out---at that point, they cut benefits to meet revenue. Thus, there can only be ACA savings to the extent that they exceed the cuts that would have happened when the HI Trust Fund runs out.

Bernstein said that this conclusion is wrong, and he used a graph (see above) from one of our previous blogs to indicate that the "Blahous baseline" differed significantly from CBO current law and resulted in lower deficits. The Balanced Budget and Emergency Deficit Control Act (Gramm-Rudman-Hollings) states that the budget baseline assumes that all programs will be adequate to meet the obligations required by law. Once one uses a baseline that assumes benefits are automatically cut to evaluate proposals, he said, any budget that cuts Medicare Part A spending--he mentioned the Ryan budget specifically--would be overstating its savings. He then pointed to Brookings Institution fellow Henry Aaron’s testimony last month to the House Ways and Means Health Subcommittee as a better description of what is going on in with health care spending and the Affordable Care Act.

Blahous and Bernstein continue the lively debate that has been ongoing for a few years about the fiscal effects of the Affordable Care Act. In this case, it's about what baseline you use: the baseline that assumes programs are fully funded at their current obligation levels or the baseline that assumes program spending is cut to equal dedicated financing.