Blog Home

«
»

Blahous Responds To Van de Water And Nichols: The Fiscal Consequences Of The ACA



April 24th, 2012

    On April 10, Charles Blahous released a paper on the fiscal consequences of the Affordable Care Act. On Friday, Health Affairs Blog offered a condensed and modified version of that paper, along with responses to the April 10 paper from Paul Van de Water and Len Nichols. Below, Blahous replies to those responses.

    Paul Van de Water raises a number of interesting points in his reply.  Let me state here as I have elsewhere that I share his view that the prevailing scorekeeping convention is appropriate for most policy evaluation purposes, for essentially the same reasons that he gives.  Rather than spend much of my reply reviewing where we agree, let me focus on three of the points where we don’t.

    You Can’t Hit Two Home Runs with One Swing of the Bat

    I like Mr. Van de Water’s idea of using a baseball analogy, but I disagree with the analogy that he uses.  He asserts that the ACA both extends Medicare solvency and reduces the deficit in much the same way that a particular home run in baseball can both add to a team’s score and improve a player’s batting average.  I believe this analogy is misapplied. In baseball one home run can indeed do both of these things.  By contrast, separate and distinct financing resources are required to fulfill each of the various uses claimed for the cost-savings in the ACA, which include extending the solvency of Medicare, expanding Medicaid/CHIP, and providing subsidies for health exchange insurance purchases.  The government must issue separate checks when it makes Medicare and Medicaid payments; the same program can’t cash both.  If only one financing source has been provided for the two commitments, additional borrowing will be necessary and the deficit will rise.  The appropriate baseball analogy would be to claim that a player can hit two home runs with one swing of the bat.  He can’t.  To get the ball over the fence twice, he needs to swing twice.

    CBO agrees with me on this:  “The key point is that the savings to the HI trust fund under the PPACA would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs. . . . To describe the full amount of HI trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings. . . ”

    So does the CMS Medicare Actuary:  “In practice, the improved Part A financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”

    I do not use the “double-counting” term in my study (other than in a reference to the ongoing debate) because it is accusatory and because it sounds as though the issue is merely a presentational one.  My study is not about the terminology used by the law’s proponents and opponents, but about how the change in law under the ACA will affect federal finances.

    The Fiscal Worsening Under the ACA is Not an Accounting Artifact but a Practical Reality

    Mr. Van de Water’s post implicitly acknowledges that my description of the statutory change in the ACA relative to prior law is technically correct; he is arguing rather that the oft-cited comparison to the scorekeeping convention baseline is more meaningful.  So I believe we basically agree on the relevant facts; the ACA worsens the deficit relative to actual prior law, and reduces it relative to the CBO baseline. I also believe we agree that the baseline CBO uses is the right frame of reference much of the time.

    (See CBO on how their baseline differs from actual law: “In keeping with the rules in section 257 of the Deficit Control Act of 1985, CBO’s baseline incorporates the assumption that payments will continue to be made after the trust fund has been exhausted, although there is no legal authority to make such payments.”)

    But as with every scorekeeping convention, there are drawbacks to the particular one that appears to show the ACA reducing the deficit.  Here the conventional baseline obscures the fact that the ACA increases deficits both as a matter of literal law and as a matter of practical budgetary reality.  The ACA’s extension of Medicare solvency, which has no apparent budgetary effect under the CBO baseline, has a very powerful one in the real world.  Congress has historically only enacted cost-savings in Medicare HI to the extent it is required to do to maintain program solvency.  The extension of Medicare HI solvency in the ACA is thus even now easing the pressure on Congress to enact further Medicare savings in the coming decade, relative to what would be the case if insolvency were still projected for 2016.  This real-world effect offsets a substantial amount of the Medicare cost savings attributed to the ACA, more than enough to turn it into a substantial fiscal negative.

    This is not a speculative interpretation but the only one consistent with historical legislative practice.  Historically Congress has always taken impending Medicare HI solvency seriously and has never permitted the program either to become insolvent or to rely on general revenues.  By contrast, the CBO baseline implicitly assumes Medicare law would otherwise have been changed to permit the program to spend beyond its trust fund resources without limit and to be propped up from the general fund, an assumption without any historical precedent in actual practice.

    Thus, far from being a baseline game, my study highlights two very important facts – that ACA both worsens deficits from a literal law perspective and from a practical perspective.  The reality behind this has long been recognized by both parties, which is why Congress’s pay-go rules have long forbidden using Social Security savings to fund new spending programs.  Unfortunately, the ACA made use of a specific loophole in the budget rules that allows dual commitments of savings generated within Medicare HI.

    A Great Factual Mistake in the Criticism

    Mr. Van de Water makes a factual mistake repeated in Mr. Nichols’s post, writing that, “Blahous also contends that we should not count some of the Medicare savings in health reform because Congress will not allow them to go into effect.”  I make no such assertion in my study.  My finding that the ACA adds over $340 billion to federal deficits over the next ten years assumes all Medicare savings transpire as currently written. We will need all of the enacted amount of Medicare cost savings and more to continue the financial viability of Medicare itself, which is why we cannot simultaneously dedicate the proceeds of these savings toward funding an enormous new spending program without further straining federal finances.

    Nichols Post Impugns Motives, Contains Several Factual Errors

    My general approach when I write is to steer clear of impugning others’ motives, and to enter into the policy debate only when I have some relevant and/or overlooked information to present.  Mr. Nichols’s piece unfortunately attributes various other motives to my work and I will not respond in kind other than to say that these attributions are wholly incorrect.

    Perhaps more relevantly for Health Affairs Blog readers, Mr. Nichols’s piece contains a number of factual errors that render it largely irrelevant to a discussion of my study.  Among them, Mr. Nichols writes:  “when Mr. Blahous is worrying about the out years, he says Congress never sticks to its cost control impulses and therefore all Medicare spending cuts in the ACA will be undone.”  My study contains no such statement, implication or assumption.  Readers should be disabused of the misperception that the results of my paper depend on any such claim.

    A Wrongly Attributed Premise

    Mr. Nichols also writes that “The false premise in the Mercatus report is that the only metric that matters for the Patient Protection and Affordable Care Act is that of deficit reduction. . . . Supporters of the ACA always had TWO goals: to enable all Americans to finally have access to quality care, but in ways that are affordable for families and for our society as a whole.”  This attribution of such a “false premise” to my study is incorrect, and is indeed quite the opposite of what I wrote.  Instead my paper noted that there were “multiple aspirational goals for the effort.  Other stated objectives included humanitarian ones, such as using the authority of the federal government to dramatically expand health coverage.”  The text further states that these policy goals were “important, complex, and beyond the scope of this study.”  I have in no way implied that fiscal improvements were the only goal of the law’s advocates, though I have stated that both opponents and proponents of the law generally agreed that federal fiscal improvements were necessary so that rising health cost obligations do not ultimately precipitate a federal fiscal disaster.  I regard the ACA’s adverse fiscal effects as an important point of information, but have not expressed the view wrongly attributed to me here.

    No Conflict with CBO Report

    Mr. Nichols suggests I have insinuated that “CBO is engaged in subterfuge” for following prevailing scoring conventions.  I have done no such thing.  To the contrary, within my paper I express my support for those scoring conventions in many policy evaluation contexts.  I have repeatedly expressed my approval of CBO’s work, and agreement with their conclusions with respect to the question they were obliged to study.  The CBO quotations cited in my answer to Mr. Van de Water substantiate that it sees these analytical issues as I do.  CBO was simply directed to evaluate the legislation in comparison with a standard scorekeeping baseline.  I have instead asked and answered how the ACA has changed the federal fiscal situation relative to actual prior law.  There is no conflict between my results and CBO’s.  We have simply explored different questions.

    Beyond the factual mischaracterizations of my paper, Mr. Nichols’s post also inaccurately characterizes the CBO report.  He writes that CBO found that “if the totality of the law’s provisions go into effect,” that the unified budget deficit will be “reduced.”  Actually, CBO’s publications (cited in my response to Mr. Van de Water) disclose that their evaluations do not account for all effects of changes in enacted Medicare law, but instead follow scoring conventions that differ from actual law in some respects.  Had CBO been required instead to factor the totality of the change in Medicare law into its analysis, the qualitative results would have been like those of my study: that the enactment of the ACA will increase unified deficits.

    A Discussion Can Only Be Fruitful if Based on the Facts

    This misunderstanding of CBO scorekeeping is not unique to Mr. Nichols and we can further discuss the details if it is of interest to Health Affairs readers.  More serious for our immediate purposes are his post’s mischaracterizations of the contents of my study.  His post wrongly attributes each of a foundational premise, an attack on CBO, hidden motivations, and an assumption regarding overriding future Medicare cuts to me, among other errors, none of which has a basis in my actual published work, statements, or opinions.  Mr. Nichols’s post is about many things, but it is not about my paper.  If my paper is to facilitate an informative discussion here, it will be necessary for discussants to instead base their comments on its actual content.

    Email This Post Email This Post Print This Post Print This Post

    1 Trackback for “Blahous Responds To Van de Water And Nichols: The Fiscal Consequences Of The ACA”

    1. Mining Asteroids, and Other Links | John Goodman's Health Policy Blog | NCPA.org
      April 26th, 2012 at 9:40 am

    No Responses to “Blahous Responds To Van de Water And Nichols: The Fiscal Consequences Of The ACA”

    Leave a Reply

    Comment moderation is in use. Please do not submit your comment twice -- it will appear shortly.

    Authors: Click here to submit a post.