Advancing a Free Society

More on the budgetary effect of health care reform

Wednesday, April 11, 2012

Today Avik Roy of Forbes kindly provided me with a forum for responding to some of the questions that have arisen about my study showing that the 2010 health care reform law will add substantially to federal deficits.

The full paper, again, is here.

The Forbes blog is here.

Excerpts from the Forbes blog post:

The paper was subject to a double-blind peer review process, which means I did not know who was reviewing the paper, and the reviewers did not know who had written it.  Prior to this review process, I also independently had the paper reviewed by several fellow federal budget and health care financing experts to confirm that the analysis was correct.  Few of the criticisms of the paper have been substantive. I do not believe the few substantive criticisms hold water for the following reasons:

1. There is no dispute that my study’s reading of the law is correct.

2. There is no dispute that the scoring convention used to find that the ACA reduces federal deficits differs from actual law.

3. The basis of the criticism is the contention that an evaluation based on the scoring convention’s hypothetical baseline is a better indicator of the likely budgetary effects of the ACA than is an analysis that analyzes the literal change in the law.

4. Crucially, for the critics’ contention above to be correct, there must be no increase in future Medicare spending as a result of the ACA’s extension of Medicare HI Trust Fund solvency.

5. The available empirical evidence is decisively against the theory of government behavior outlined in #3 and #4 above.

Supporters of the ACA have elsewhere made clear that they agree the ACA will extend the Medicare Trust Fund’s solvency, protect its spending authority, lessen the risk of near-term benefit reductions, and mitigate the urgency of further Medicare reforms.In sum, the literal change in law effectuated by the ACA clearly increases federal deficits, as even the critics of the study have conceded.  Beyond this, however, the empirical evidence contradicts the theory that the hypothetical scorekeeping convention is a better guide to the practical budgetary impact of the ACA.  Both by statute and as a matter of political economy realities, the ACA clearly worsens the fiscal outlook.

The Washington Times also printed an op-ed I wrote briefly explaining the paper.  It can be found here.

Excerpt: Many are skeptical of claims that the law, known as the Affordable Care Act, or ACA, will simultaneously extend the solvency of Medicare, provide subsidized health coverage to more than 30 million new people and yet somehow reduce federal deficits. They are right to be skeptical.  The legislation greatly exacerbates projected federal deficits and increases an already unsustainable federal commitment to health care spending. Many do not understand these harsh realities because traditional government accounting methods - while useful in many respects - often obscure significant costs. Comparing the health care law to prior law, rather than the “alternate baseline” used by government scorekeepers, gives a complete estimate of the legislation’s fiscal effects.