March 16, 2017

How to Repair the ACA's Fiscal Damage

Charles Blahous

J. Fish and Lillian F. Smith Chair

Most of the debate about the Affordable Care Act has centered on how it affects health care. It’s time to pay attention to how ObamaCare has damaged federal finances. Lawmakers must bear in mind, even as they balance other important value judgments affecting the health and income security of millions of Americans, that the current repeal-and-replace effort represents a unique, fleeting opportunity to accomplish essential fiscal corrections.

Three factors contribute significantly to widespread confusion about the ACA’s damaging fiscal effects. The first is that many of the provisions designed to finance its expansion of insurance coverage haven’t borne fruit. Various financing provisions have instead been repealed, suspended, postponed or weakened by regulation.

More than half of the ACA’s projected deficit reduction over its first 10 years was to come from surplus operations of its long-term care program called Community Living Assistance Services and Supports, or Class, which was suspended in 2011 and repealed in 2013 because it was actuarially unsound. The ACA’s “Cadillac tax” was immediately postponed until 2018 in the 2010 reconciliation bill; later it was weakened and further postponed until 2020. The ACA’s health-insurance fees and medical-device taxes have been suspended. Expected revenues from the individual and employer mandate penalties were reduced, first by delaying their implementation and later via new exemptions. As these various financing mechanisms have been weakened or discarded, the ACA’s financial effect has become more unfavorable than even the most pessimistic critics predicted.

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