OMB, ACA, CBO and the deficit

The OMB has dug into the CBO's projections for the Affordable Care Act, and they're pretty pleased with what they see. I'm going to quote the analysis, but if you just want to read one line, the ACA wipes out about a quarter to a third of our long-term deficit -- and that's in the nasty scenario, where we continue things like the Bush tax cuts and the Medicare doc fixes.

• CBO projects that the Affordable Care Act will, unless Congress reverses some of its provisions in the future, reduce the long-term fiscal gap — the amount by which revenues must be raised or spending cut to produce a stable debt trajectory — by 2 percent of GDP over the next 75-years. (Between CBO’s long-term report from last year and its report from this year, the 75-year fiscal gap under the "baseline scenario" has been cut by 2.5 percentage points of GDP. There has been only one major change to fiscal outlook in that period — the enactment of the Affordable Care Act. And, based on both the CBO report’s narrative and backup data, the Affordable Care Act is responsible for about 2 percentage points of GDP of this deficit reduction.) • Furthermore, CBO's analysis may underestimate the impact of effectively implementing the Act. Specifically, starting in 2030 under its baseline scenario, CBO essentially assumes that a number of the savings measures in the Affordable Care Act — most importantly, the Medicare Independent Payment Advisory Board (IPAB) — are "turned off," with the growth rate of Medicare costs returning to what it would have been in the absence of the legislation instead of continuing at the lower rate both assumed by CBO prior to 2030 and explicitly required by the law as a target for the IPAB process. If instead, the IPAB continued limiting cost growth in Medicare after 2030 as it is supposed to, this would increase the deficit reduction produced by the Affordable Care Act by about another half of a percentage point of GDP over the next 75-years — so the reduction in the fiscal gap would amount to about 2.5 percent of GDP.

• Last year, CBO put the 75-year fiscal gap at about 8 percent of GDP; this assumes current policies — such as the 2001/2003 tax cuts, relief from the Alternative Minimum Tax, and a fix to the Medicare physician payment system — are continued. The figures above suggest that if fully implemented, the Affordable Care Act would reduce this by about one quarter to one third, or to roughly 5 to 6 percent of GDP.

At this point, some conservatives say, that might all be true, but the cost controls in the health-care reform bill are tough, and we'll never implement them. Unfortunately, there are no policies that will substantially cut the long-term deficit and aren't tough and difficult to implement. We can either pass deficit-reducing legislation and implement it or we can go bankrupt. There's no other choice. And the upside for the Affordable Care Act's cost controls is that they've been passed into law, and you'd need 60 votes to stop them, which is better than hypothetical policies where you'd still need 60 votes to stop them.

In other words, the system's bias toward inaction is in favor of the ACA's cost controls, while it's against hypothetical alternative policies. The correct position for deficit hawks is to advocate the full implementation of the ACA, not to give aid and comfort to those who'd repeal its cost controls by saying they'll never be implemented in the first place.

