The Corner

News from the CBO Report: Medicaid Uncertainty Remains, Medicare Cuts Grow

Today the CBO released its projection of the ACA budget baseline, concluding that the net cost of the bill is now $84 billion lower. The essence of the CBO analysis is that for every person that would have been in the Medicaid expansion had their states accepted it who ends up uninsured, taxpayers save $6,000. For every such person who ends up in the exchanges, it costs federal taxpayers $3,000. The CBO assumes that there will be roughly 3 million of each group. The bottom lines follow.

It is equally important that the CBO described what it did not do. It did not (a) identify which states will or will not expand Medicaid, (b) which states will do so in 2014 (versus later), or (c) which states will undertake full expansions. Thus, the CBO estimates are not the result of a scenario, but rather the average of a large number of possibilities — in short, they’re highly uncertain. In contrast, our AAF estimates correspond to specific states and specific populations.

The CBO also did not include in its analysis the impact of the maintenance-of-effort provisions, instead assuming that states would not take advantage of the optional nature of the Medicaid expansions to reduce their rolls after 2014. To the extent that states shift from Medicaid to the exchanges, the cost will go up.

Finally, the CBO’s analysis focuses only on the direct impact of the coverage provisions (Medicaid, exchange subsidies, penalty taxes), and not interactions with the remainder of the law. Put differently, this does not constitute a comprehensive re-estimate of the cost of the ACA.

An interesting feature of the report is that the CBO estimates that the ACA will cut Medicare spending by $741 billion over the next 10 years, up from the roughly $500 billion advertised at passage (see page 5, table 2 — Medicare and Other Medicaid and CHIP Provisions). This change reflects both the fact that the budget window is different, and that in the absence of cuts, Medicare is growing quite rapidly. Accordingly, the size of the cuts are growing rapidly as well.

The final aspect of the CBO analysis, contained in a letter to Speaker Boehner, is that repeal of the ACA will increase the deficit by $109 billion over 10 years. Interestingly, $95 billion is “off-budget” savings — CBO parlance for Social Security taxes. Put differently, the ACA is budgetarily “sound” only because of higher taxes — no health-care savings in sight.

The bottom line: The CBO report is unsurprising and does not shed much real light on the actual future impact of the ACA on the federal budget. It does reinforce the basic bad news: no real bending of the cost curve, necessitating higher taxes and large Medicare cuts to make the numbers add up.

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