Medicare trustee says health reform law will add to debt

Washington A Medicare trustee who was an economic adviser in the George W. Bush administration has warned that the health system reform law could add between $340 billion and $530 billion in federal deficits during the next decade.

The fiscal impact of the reform law that will expand insurance coverage to tens of millions of Americans has not been understood completely, said Charles Blahous, PhD, in a research paper published by the Mercatus Center at George Mason University, a think tank that promotes free-market policy ideas. Overall, federal spending will increase by more than $1.1 trillion from 2012-21 because of the law enacted in 2010.

“Relative to prior law, the [reform law] would increase an already unsustainable federal commitment to health care spending, exacerbate projected federal deficits and thus considerably worsen the federal fiscal outlook,” said Blahous, a senior fellow at the Mercatus Center.

Previous analyses of the law had predicted that health reforms would extend the solvency of the Medicare program. For instance, after the law’s enactment, the hospital trust fund was projected to cover Part A benefits until 2029, which was 12 years longer than an estimate in 2009. In 2011, the solvency of the trust fund was revised back to 2024.

But the law relies on those savings to pay for its other provisions, such as providing subsidies to low-income individuals to pay for health coverage on insurance exchanges, Blahous said. Exchange subsidies will cost $777 billion during the next 10 years, according to the Congressional Budget Office.

The law also applies a 3.8% tax on investments for individuals with incomes more than $200,000 and couples with incomes over $250,000. But the tax is not indexed to inflation and would include more Americans over time. Congress probably would not allow the number of taxpayers affected by the new tax to grow, and the government would collect less revenue as a result, Blahous said.

To improve the nation’s fiscal outlook, he recommended that Congress eliminate two-thirds of the exchange subsidies before the benefit begins in 2014.

The “double-counting” argument used to discredit reform law savings is not new, said Paul Van de Water, PhD, a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. The fiscal projections for the federal budget and the Medicare trust funds are different. Some health reforms in the law improve the budget but not the trust fund, while other provisions improve both. In the end, government actuaries have concluded that federal deficits would be reduced, and the solvency of the Medicare program would be extended, he said.

“That’s no different than when a baseball player hits a home run — it adds to his team’s score and also improves his batting average,” Van de Water said. “Neither situation involves double-counting.”