• About that new GAO study

    Time to “catch the vapors” again:

    The Senate Budget Committee’s top Republican said a new government report shows that President Obama’s healthcare law will add $6.2 trillion to the deficit over the next 75 years.

    Sen. Jeff Sessions (Ala.) said numbers from the nonpartisan Government Accountability Office (GAO) prove the Affordable Care Act won’t reduce the deficit, as proponents claimed.

    “The report reveals the dramatic falsehoods that were used to push [the bill] to passage,” Sessions said in opening remarks at a Budget Committee hearing.

    Philip Klein was kind enough to post a link to the actual GAO report (emphasis mine):

    The effect of the Patient Protection and Affordable Care Act (PPACA), enacted in March 2010, on the long-term fiscal outlook depends largely on whether elements in PPACA designed to control cost growth are sustained. There was notable improvement in the longer-term outlook after the enactment of PPACA under GAO’s Fall 2010 Baseline Extended simulation, which assumes both the expansion of health care coverage and the full implementation and effectiveness of the cost-containment provisions over the entire 75-year simulation period. However, the federal budget remains on an unsustainable path. Further, questions about the implementation and sustainability of these provisions have been raised by the Centers for Medicare & Medicaid Services’ Office of the Actuary and others, due in part to challenges in sustaining increased health care productivity. The Fall 2010 Alternative simulation assumed cost containment mechanisms specified in PPACA were phased out over time while the additional costs associated with expanding federal health care coverage remained. Under these assumptions, the long-term outlook worsened slightly compared to the pre-PPACA January 2010 simulation.

    Federal health care spending is expected to continue growing faster than the economy. In the near term, this is driven by increasing enrollment in federal health care programs due to the aging of the population and expanded eligibility. Over the longer term, excess cost growth (the extent to which growth of health care spending per capita exceeds growth of income per capita) is a key driver. Slowing the rate of health care cost growth would help put the budget on a more sustainable path. There is general agreement that technological advancement has been the key factor in health care cost growth in the past, along with the effects of expanding health insurance coverage and increasing income, but there is considerable uncertainty about the magnitude of the impact that the different factors will have on future health care cost growth.

    Let’s be clear about what this report says. It’s a worst-case-scenario. They looked at what would happen to the deficit if (1) we left in all the spending, (2) all of the cost control measures utterly failed, and (3) we removed all of the revenue streams/taxes. If you do that, then the bill raises the deficit $6.2 trillion over 75 years.

    But some of those things take an actual act of Congress. Many of the taxes and cost control measures will only go away if people like Sen. Sessions actually vote to strip them from the ACA. So I think it’s somewhat odd to say that the bill was passed with “dramatic falsehoods”. We won’t see these worrisome results because of the law. We’ll see them if Congress changes it.

    Now if Sen. Sessions were to say that the GAO report shows we’re screwed if the government does everything in its power to avoid controlling costs, that’s something I’d agree with.


    • The main cost control measure are the productivity cuts. As GAO points out, CBO, actuaries and most economists find these productivity cuts to be impossible to sustain. The Medicare payment cuts are asking the hospital industry to do something that is considered by many to be impossible for that particular service industry. I know Austin wrote on Baumol’s book and has some objections to the book. But overall Baumol’s cost disease has dramatic implications for health care reimbursement.

      Saying that Congress will override these cuts and therefore its Congress fault is a silly out. The burden should be on you to explain how the hospital industry can become so much productive year over year. CBO, GAO and actuaries find this to be an unrealistic scenario given political and economic history.

      GAO’s model follows the same model that CMS actuaries use. The ACA cuts are in effect for a certain period of time and then are removed b/c they are unsustainable. Id ‘say a worse case scenario is providers backlash against these cuts even sooner than CMS/CBO assumes.

      • No, there’s the excise tax. There’s the DSH cuts. There’s the pharmaceutical cuts. There’s the Medicare Advantage cuts. There’s the mandates and penalties. There’s the Medical device tax. There are other taxes, too.

        If we keep the spending in, and remove all of these (and more), then you get the GAO report. It’s right there. And doing all of those things I mentioned takes Congress.

        • Plus IPAB. Though I assume most of the people who will be demagoguing about the GAO’s findings also support repealing IPAB.

        • The taxes aren’t repealed. They’re just blended with overall tax revenue which is then artificially capped. The artificially cap based on historical tax rates is the biggest flaw in this study.

          I believe their projections include the MA cuts, b/c the alt OACT scenario is basis of GAO projections of future spending.

          You’ve completely elided the point how providers evade cost disease problems that plague the service industry. That is the key reason that no one thinks the productivity cuts are sustainable. DSH are minor compared to them.

    • Sigh. I just know I will see this in my email from my Tea Party buddies. Few people bother to read source material, they just remember the catchy $6.2 trillion. Thanks for your efforts on this.


    • Clarifying question: What exactly is meant by “add $6.2 trillion to the deficit over the next 75 years?” The deficit is a flow, not a stock like the debt. Does this mean that in 75 years, the deficit will be $6.2 trillion more (in current dollars?) than it is now? If so, I’m glad I’ll be dead by then (assuming life expectancy doesn’t change much; otherwise the ACA will be the least of our fiscal problems by then). Or does it mean that the debt will be $6.2 trillion more?

    • Hoo makes an important point that other commentators have missed: The GAO alternative projection, on which Senator Sessions relies, leaves out most of the additional revenues from the ACA. Under that foolish assumption, it’s no wonder that the ACA adds to the deficit. GIGO.

    • Without even looking at the numbers all one has to do is look at the history of these types of programs. Medicare is way over initial predictions and threatens to bankrupt the nation. Same with Medicaid and social security.

      In fact look at the war on poverty. Here is what was said at the time by LBJ in 1964 “Every dollar spent will result in savings to the country and especially to the local taxpayers in the cost of crime, welfare, of health and of police protection.” From 1965 to 2008 we spent nearly $16 Trillion 2008 dollars on means tested welfare programs. Our spending hasn’t decreased rather it has increased massively while we have the most people since 1965 on food stamps.

    • “The effect of the Patient Protection and Affordable Care Act (PPACA), enacted in March 2010, on the long-term fiscal outlook depends largely on whether elements in PPACA designed to control cost growth are sustained.”

      Well your other recent post on the Arkansas waiver for putting Medicaid patients in the private system – pointing out how it will cost a lot more to do it this way – illustrates precisely how the system will implode – what if all, or many of the states get the same waiver? And you will notice that the Arkansas waiver provides for “review” by the state at the start of the time period (after 3years) when the state has to pick up a percentage – what do you suppose will happen then … It will revert to the “old system” because the state will be “too poor” to sustain the new one. In the meantime the costs for PPACA will have rendered it “unsustainable”, especially in an Admin/Cong. that is quite obsessed with “reducing the deficit”, in a rather short time ….

      This is called “bleeding the beast” (as opposed to starving the beast, which is what the payroll tax”holiday” was all about, IMO …)