Testimony on Last Year's Major Health Care Legislation

March 30, 2011

This morning I testified before the House Energy and Commerce’s Subcommittee on Health on CBO’s analysis of the Patient Protection and Affordable Care Act (PPACA) and the health care provisions of last year’s Reconciliation Act. With the staff of the Joint Committee on Taxation (JCT), we have provided the Congress with extensive analyses of the legislation, and my written statement summarizes that work.

Effects of the Legislation on Insurance Coverage and on the Federal Budget

  • Number of People with Insurance Coverage: We estimate that the legislation will increase the number of nonelderly Americans with health insurance by roughly 34 million in 2021. About 95 percent of legal nonelderly residents will have insurance coverage in that year, compared with a projected share of 82 percent in the absence of that legislation and 83 percent currently. The legislation will generate this increase through a combination of a mandate for nearly all legal residents to obtain health insurance; the creation of insurance exchanges through which certain people will receive federal subsidies; and a significant expansion of Medicaid.
  • Costs of Expanded Insurance Coverage: According to our latest estimate, the provisions of the laws related to health insurance coverage will have a net cost to the Treasury from changes in direct spending and revenues of $1.1 trillion during the 2012-2021 decade. (Direct spending is that which is not controlled by annual appropriation acts.) That amount is larger than CBO’s original estimate of the cost of those provisions during the 2010-2019 decade that represented the 10-year budget window when the original estimate was produced. The increase owes almost entirely to the shift in the budget window; as you can see in the figure below, the revisions in any single year are quite small. Over the eight-year period (2012-2019) that is common to our original analysis and the most recent one, the net cost of the coverage provisions is now 2 percent higher than CBO and JCT estimated in March 2010.

Comparison of CBO’s 2010 and 2011 Estimates for PPACA and the Health Care Provisions of the Reconciliation Act

(Billions of dollars, by fiscal year)

  • Net Budgetary Impact of the Legislation: PPACA and the Reconciliation Act also reduced the growth of Medicare’s payment rates for most services; imposed certain taxes on people with relatively high income; and made various other changes to the tax code, Medicare, Medicaid, and other programs. As you can see in the figure below, those provisions will reduce direct spending and increase revenues, providing an offset to the cost of the coverage provisions. According to our latest comprehensive estimate of the legislation, the net effect of changes in direct spending and revenues is a reduction in budget deficits of $210 billion over the 2012-2021period. In addition to those budgetary effects, the legislation will affect spending that is subject to future appropriation action. CBO has estimated that the Internal Revenue Service and the Department of Health and Human Services will each incur costs of between $5 billion and $10 billion over the next 10 years to implement the legislation. The laws also authorized other appropriations, most of which were for activities that were already being carried out under prior law or that had been previously authorized.

 Estimated Effects of PPACA and the Health Care Provisions of the Reconciliation Act on the Federal Budget

(Billions of dollars, by fiscal year)

My written statement describes this estimate in more detail and touches on other effects that we have estimated—including the budgetary impact in the second decade and the laws’ impact on health insurance premiums and employment.

Critiques of CBO’s Analysis

Observers have raised a number of challenges to our estimates. At the hearing, I discussed the three most common areas of concern that I’ve heard expressed:

First, some analysts have asserted that we have misestimated the effects of the changes in law. These concerns run in different directions: Some analysts believe that the subsidies will be more expensive than we project, while others maintain that the Medicare reforms will save more money than we project.

Certainly, projections of the effects of this legislation are quite uncertain, and no one understands this better than the analysts at CBO and JCT. Our estimates depend on myriad projections of economic and technical factors, as well as on assumptions about the behavioral responses to federal policies by families, businesses, and other levels of government. All of those projections and assumptions represent our objective and impartial judgment, based on our detailed understanding of federal programs, careful reading of the research literature, and consultation with outside experts. In addition, our estimates depend on our line-by-line reading of the specific legislative language. Our goal is always to develop estimates that are in the middle of the distribution of possible outcomes, and we believe that our estimates achieve that goal.

A second type of critique of our estimates is that budget conventions hide or misrepresent certain effects of the legislation. As one example, the numbers most often cited involve changes in direct spending and revenues because that is what is relevant for pay-as-you-go procedures and because those changes will occur without any additional legislative action. However, PPACA and the Reconciliation Act will also affect discretionary spending that is subject to future appropriation action. We noted many times the costs that we expect the Department of Health and Human Services and the Internal Revenue Service to incur in implementing the legislation. PPACA also includes authorizations for future appropriations. Those referring to specific amounts total about $100 billion over the decade, with most of that funding applied to activities that were being carried out under prior law, such as programs of the Indian Health Service.

Another example of concern about budget conventions involves the Hospital Insurance trust fund, which covers Medicare Part A. The legislation will improve the cash flow in that trust fund by hundreds of billions of dollars over the next decade. Higher balances in the fund will give the government legal authority to pay Medicare benefits longer, but most of the money will pay for new programs rather than reduce future budget deficits and therefore will not enhance the government’s economic ability to pay Medicare benefits in future years. We wrote about those issues as the legislation was being considered.

A third type of critique is that PPACA and the Reconciliation Act will be changed in the future in ways that will make deficits worse. As with all of CBO’s cost estimates, the ones for this legislation reflect an assumption that the legislation will be implemented in its current form. We do not attempt to predict the intent of future Congresses that might choose to enact different legislation. At the same time, we have emphasized that the budgetary impact of this legislation could be quite different if key provisions of the legislation were changed, and we have highlighted certain provisions that we expect might be difficult to sustain for a long period of time.

Many of CBO’s publications related to the health reform legislation can be found here