CRFB Releases Report on Long-Term Effects of Health Reform

Today, CRFB released its report on the long-term effects of the recent health care reform package (be sure to check it out!), based on information provided in CBO's Long Term Outlook. CBO's analysis reflects the relatively inconclusive results of health reform's true budget impact. While those on the right and the left have argued that the reform package will either substantially increase or decrease the U.S. deficit, in reality, it is very difficult to predict what effect it will have in the long-run.

In the short run, the reform is projected to reduce the deficit by $143 billion as a result of tax increases and Medicare cuts which more than offset new spending on Medicaid and exchange subsidies. Beyond that, several measures -- including cuts in annual updates for provider payments, a slowing in the growth of premium subsidies, an Independent Payment Advisory Board, and a growing excise tax on high-cost plans -- are supposed to put downward pressure on the growth of the deficit.

Unfortunately, the exact impact of these changes is very difficult to measure considering the inherent uncertainty of health care projections, the untried nature of many of these changes, the fact that CBO's long-term projections alreadyassume health care cost growth will slow, and the fact that many measures in the legislation may prove politically and economically unsustainable in the long-run.

With the information they do have, CBO presents two long-term budget scenarios -- one which shows health reform significantly reducing the long-term deficit (mainly as a result of higher revenues), and one which shows it having little effect at all.

We cannot be sure which is these scenarios is a closer projection of reality, though we do know that the growth of Medicare and Medicaid remains unsustainable under either.

In our report, we not only attempt to explain CBO's analysis on the impact of health reform, but also discuss ways to maximize the chances that reform succeeds in controlling costs.

Regardless of what scenario we look at, a lot more work has to be done.

Below is a table from the report, showing the effects and CBO's assumptions of health reform on the long-term.

  Baseline-Extended Scenario Alternative Fiscal Scenario
First Decade        Spending and revenue provisions play out as written in law Spending and revenue provisions play out as written in law
Deficit Impact in 2020
   0.1 percent of GDP reduction  0.1 percent of GDP reduction
Second Decade Federal health spending grows at slowed rate based on estimated "broad growth rates" of provision in health legislation; tax provisions play out as written into law Federal health spending grows at rates estimated absent reform, under the assumption that policymakers will not allow certain cost-controlling measures to continue; overall revenue levels will remain fixed percent of GDP
Deficit Impact in 2030
  1 - 1.3 percent of GDP reduction
  0 - 0.1 percent of GDP reduction
Beyond Second Decade Federal health spending grows at rates estimated absent reform (though from a lower level); tax provisions play out as written into law Federal health spending grows at rates estimated absent reform; overall revenue levels will remain fixed percent of GDP
Deficit Impact in 2080
  4 - 5 percent of GDP reduction
  0.3 percent of GDP increase

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