Medicare trustee: ObamaCare is financially unraveling

When the Affordable Care Act was working its way through Congress, President Barack Obama and congressional Democrats promised that the law would bring down healthcare costs and have a positive impact on the federal budget deficit. Unfortunately, those promises aren’t panning out, according to one of the trustees of Medicare and Social Security, and taxpayers will be worse off.

“Even before the president signed the ACA into law, non-partisan analysts demonstrated that the belief it would reduce federal deficits was based on a misunderstanding of government accounting,” wrote Charles Blahous, a trust of the two major entitlement programs and a senior research fellow at the Mercatus Center at George Mason University.

“The ACA’s projected savings from Medicare payment reductions were in effect being doubly committed: once to extend Medicare solvency and a second time to fund a massive coverage expansion,” noted Blahous. “Both the Congressional Budget Office (CBO) and the Medicare Chief Actuary alerted Congress to the problem at the time.”

In 2012, Blahous wrote a paper explaining that the Affordable Care Act — or “ObamaCare,” as Americans have come to know it — would add $340 billion to the federal budget deficit over 10 years because of the double-counting of Medicare savings and the suspension of the CLASS Act, a provision of the law deemed unworkable.

Blahous pointed to some recent developments concerning the financing of the law, including the Supreme Court’s decision to allow states to opt-in to Medicaid expansion, and the Obama Administration’s delay of the employer mandate. He contends that these actions will increase federal budget deficits and warns that future changes to certain provisions and/or expanded access to subsidies, which is what Congress and staffers got and what labors leaders desire, could add to the cost of the law.

Political pressure may also undo other provisions of the law. There has been a bipartisan push in Congress to repeal ObamaCare’s medical device tax, which, Blahous noted, would raise $29 billion over the next 10 years.

He also pointed to the unpopularity of the Independent Payment Advisory Board (IPAB, or “death panels”), which was intended keep Medicare costs in check, and questioned the projections of the ‘unearned income Medicare contribution” — also known as the “Cadillac tax” — on some health insurance plans.

“The income thresholds for the UIMC are not indexed for inflation, so under law most workers would eventually be subject to the tax-over 80 percent of workers within 75 years, according to the Medicare trustees,” noted Blahous. “Past experience with legislation overriding other non-indexed taxes like the Alternative Minimum Tax (AMT) demonstrate why projections of escalating UIMC revenues should be taken with a hefty grain of salt.”

“So, too, with the so-called ‘Cadillac plan tax,’ designed to hit more and more health insurance plans over time, an outcome that organized labor is determined to prevent,” he added.

Criticism of the “Cadillac tax” has been rather limited. But Delta executive Robert Knight recently noted in a letter to an Obama Administration official that the tax will eventually lead employers to benefits to escape the tax.

“[E]mployers are reducing or eliminating rich plan designs in order to ensure that they do not pay the [Cadillac] tax, since doing so would represent a significant waste of money,” explained Knight, who noted that Delta had already ended one health insurance plan because of the tax.

“However, keep in mind that, eventually, it’s not just the ‘rich’ plan designs that will be affected. Essentially, the Cadillac tax level represents a ‘ceiling’ on the value of benefits provided in health plans,” he continued. “However, that ceiling rises each year only at the rate of the consumer price index (CPI). On the other hand, medical inflation is rising at a higher rate than CPI.”

“The way the math works, given enough years, all plans will eventually risk being subject to the Cadillac Tax and as they do, the natural reaction will be to continually reduce benefits provided in order to avoid the tax,” Knight added.

What will eventually happen is that future Congresses will be forced to raise the ceiling or exemption on the tax, much like they had to do for the Alternative Minimum Tax until it was finally indexed to inflation earlier this year.

Blahous, a critic of ObamaCare, noted that Congress should deal with the problems sooner rather than later.

“Partisans point fingers over the reasons for the ACA’s financial unraveling, but the actors in this drama are too diverse to blame any one person or group,” he explained. “The task now facing both supporters and opponents is to take the steps necessary to prevent further fiscal damage, by scaling back the ACA’s spending commitments before millions become dependent on benefits that the government is not in a position to pay.”

Tension over ObamaCare in the current Congress makes most fixes next to impossible; one need only look at the current debate in Congress. Also, President Obama doesn’t want to have to publicly admit that some of the most key revenue provisions of the law are ultimately going to hurt Americans in a very real way.

Much like other entitlements, kicking the can down the road is much easier than address fundamental flaws of very bad public policy.

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