Financing the Affordable Care Act

Obamacare explained, including the Republican plan for its repeal

NOW THAT THE the lawsuit challenging federally established health care exchanges, King v. Burwell, has been relegated to history’s dustbin, let’s return for a deeper dive into the June 2015 report from the Congressional Budget Office (CBO), “The Budgetary and Economic Effects of Repealing the Affordable Care Care Act.” The report, which I wrote about here, projected big increases in the deficit and in the uninsured population if the landmark law were repealed. Much juicy and compelling detail from the report remains to be plumbed. Let’s start with this table, an earlier version of which (without 2016-25 numbers) I created for my 2011 book, Inside National Health Reform.

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The table contrasts ACA spending and revenues as calculated by CBO in March 2010 (when the law was signed) for the period 2010-2019 with brand new CBO estimates released last month for 2016-2025 (in bold).  Not all items in the 2010 analysis were included in the 2015 version, though the biggies are.  The table shows costs/spending and revenues/savings according to each respective ACA title. I created both versions using CBO data.

What can we see?  Lots!

First, look at the projected reductions in numbers of uninsured Americans because of the ACA.  In 2010, CBO expected the ACA would lower the nation’s uninsured by 32 million by 2019, half from private insurance/exchanges and half from Medicaid.  In the 2015 report, that number is 24 million.  Eight million fewer insured Americans, a 25 percent drop — and I’ve seen no comment on this.

Second, look at the “$ Spent” column to see what the ACA actually buys — health insurance, private and Medicaid. All over this chart, by the way, the 2016-25 money figures are much higher than the 2010-19 ones because the ACA’s big parts did not take effect until 2013 and 2014, while 2010-2012 had little spending or revenue, and while the 2020-2025 costs are high. The $54 billion in Title 3, by the way, pays for closing the Medicare Part D prescription drug “doughnut hole,” or coverage gap.

Third, let’s look at the final column that includes ACA financing in the form of: 1. Title 3’s Medicare spending reductions/savings ($879 billion); 2. Title 9’s new taxes on high income wage earners, and on drug, medical device, and insurance companies ($718 billion); and 3. Title 1’s employer and individual mandates ($210 billion), plus others.  The chart shows that Title 3’s Medicare cuts and Title 9’s new taxes pay for the Title 1 and 2’s insurance coverage expansions.  If you understand this, you get the ACA’s essential financing formula.

Because of missing data, all these numbers don’t add up to the deficit reduction number at the bottom of the table, though there’s enough to show the essential picture. As detailed in my June CBO post, in 2010 the CBO projected that the ACA over 10 years would reduce the federal deficit by $124 billion; an apples to apples comparison now shows deficit reduction at $353 billion (2016-25); when including the Republicans’ voodoo economics “dynamic scoring,” this reduction drops to $137 billion (with a ridiculously wide variance).

There’s so much more compelling detail; here are a few important nuggets:

  • Title 1’s $210 billion revenue comes entirely from the employer and individual mandates, $167 billion from the former, and $43 billion from the latter. Big lift to repeal — especially the employer mandate.
  • Title 9’s new taxes on the pharmaceutical, medical device, and insurance industries have new numbers. And the winner is:
    • Health Insurance — $142 billion
    • Pharmaceutical — $30 billion
    • Medical Device — $24 billion
  • Title 9’s so-called “Cadillac Tax,” a new 40 percent excise on expensive health insurance policies scheduled to take effect in 2018, had estimated revenue at $32 billion (2010-19) and now comes in at $87 billion (2016-25), almost a tripling as business and labor groups begin pushing hard for repeal. Another big lift.
  • The savings from Title 3’s reductions in Medicare payments to hospitals, health insurers, home health agencies, and other providers has risen from $449 billion (2010-19) to $879 billion (2016-25).  This is perhaps most important to understand. Except for insurers, hospitals and other providers agreed to these reductions to help finance expanded coverage. During the 2010, ’12 and ’14 elections, Republicans incessantly kicked Democrats for these reductions, charging them with cutting grandma’s Medicare to pay for Obamacare!  (Simplified, but true.) But then, in their subsequent budget proposals, House Republicans led by then Budget Committee chair Paul Ryan always included complete repeal of the ACA except for the Title 3 Medicare reductions!

Some wonder, how could Republicans, given the chance, ever finance repealing the ACA?  Here is the answer. If you repeal the entire ACA, except for the the $879 billion in Medicare reductions, that bill would reduce the deficit. A Republican president, working with a Republican-controlled Senate and House, using budget reconciliation rules which cannot be filibustered and only require 51 votes, could make that happen.

Inconceivable? Consider this. Twice Senate Finance Committee chairman Orrin Hatch and House Commerce and Energy chairman Fred Upton have released the “Patient Choice, Affordability, Responsibility, and Empowerment Act” (Patient CARE) as their plan to repeal the ACA.  Read their release and then click on the full description and read footnote 3 on page two and here’s what you will find:

Meet the Author

“All provisions of PPACA and HCERA are repealed except for the changes to Medicare. Medicare reforms should be considered in the context of reforms to improve Medicare and prevent its insolvency.”

[PPACA and HCERA are the two statutes that, together, constitute the ACA.]  The “changes to Medicare” — that’s the $879 billion.  If you don’t think Republicans have a strategy to repeal the ACA if they win the White House and hold the Senate in 2016, think again.

John McDonough teaches at the Harvard Chan School of Public Health and writes at healthstew.com.