There was always a lot of smoke and mirrors surrounding the Affordable Care Act accounting (aka, Obamacare), but the fog is finally starting to clear now that President is heading into an election year and the Supreme Court is deciding the constitutionality of the (still unpopular) law in late June.
Enter Charles Blahous, a Mercatus Center scholar as well as Republican Medicare and Social Security appointee whom President Obama approved in 2010. Blahous has done the public a tremendous service by looking at the fine print of the federal accounting conventions that allowed the Congressional Budget Office (CBO) to score the Affordable Care Act as (originally) reducing federal spending by $132 billion over the law's first ten years.
It's no exaggeration to say that the CBO score pushed wavering Democrats to support the law and that absent the CBO score its likely President Obama's signature domestic policy achievement would've died in committee.
Here's the key problem facing defenders of the bill: Democrats have claimed that the law both improves Medicare's long term fiscal health and pays for new entitlement spending - a massive Medicaid/CHIP expansion and new private insurance subsidies on state health insurance exchanges in 2014.
Blahous shows that Obamacare will increase the deficit by $340 billion through 2021 primarily because you can't spend the same dollar twice, no matter what "bipartisan" budget accounting rules would have you believe.
The White House is aggressively attacking the Mercatus Center scholar, accusing him of using "new math" to "fight the political battles of the past". They claim that the law "will reduce the deficit," a fact that "was true the day the bill was signed into law, it's true today."
Of course, if it wasn't true in the first place it's still not true. And here, it's critical to understand the current CBO scoring conventions in relation to current law for the Medicare Trust Fund. Here, Blahous quotes a 2010 report from the Medicare Actuary explaning the crux of the problem:
The combination of lower [Medicare Part A] costs and higher tax revenues results in a lower Federal deficit based on budget accounting rules. However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the HI trust fund. In practice, the improved HI financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.
The CBO, when asked, has said the same thing as the Medicare Actuary. Thankfully, this point didn't escape the Washington Post in it's story on the Mercatus study today:
Enter the health-care law, which provides about $575 billion in Medicare savings -- enough to automatically extend the life of the trust fund through 2029, according to estimates at the time, and avoid a sharp cut in benefits.
But in cost estimates by the nonpartisan CBO, those savings also offset a dramatic expansion of Medicaid under the law, as well as new subsidies for uninsured people to purchase coverage.
CBO and Medicare actuaries acknowledge the double-counting issue. "In practice, the improved [trust fund] financing cannot be simultaneously used to finance other federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from" traditional budget rules, Medicare actuary Rick Foster wrote last year.
And in 2010, the CBO wrote that, absent the Medicare savings, the law would increase deficits by $226 billion through 2019 -- instead of decreasing them by the commonly cited $132 billion.
Bottom line: As much as the Obama Administration would like to, you can't spend the same dollar twice. It's the administration that's using the funny math - not Blahous, and not the CBO and the Medicare Actuary who have the temerity to point out the truth when asked.
Still, what to do about it? Blahous says that:
Because of the federal government's untenable long-term fiscal outlook under current law, and because of the political difficulty (and thus infrequency) of comprehensive health care reform, it is essential that [health care] reform unambiguously and significantly improve the government's fiscal outlook.
For our unsustainable fiscal trajectory to remain qualitatively unimproved after the expenditure of so much political capital would represent a substantial failure of governance.
Furthermore, for comprehensive health care reforms to have rendered an already unsustainable federal fiscal situation still worse would be a disastrous outcome warranting immediate legislative corrections before the law becomes fully operational and before such corrections become too difficult to achieve.
The short version: repeal and replace the Affordable Care Act before the government's fiscal situation gets any worse - and it's already pretty bad.