# Post-Ruling Healthcare Politics Needs Deficit Reduction Focus | On Point

Post-Ruling Healthcare Politics Needs Deficit Reduction Focus

2012 July 11

The recent Supreme Court ruling that upheld the Patient Protection and Affordable Care Act of 2010 (ACA) has rekindled the heated political debate over the law. As expected,  supporters of the law hailed the Supreme Court decision and continue to tout the law as the panacea to America’s healthcare problems, given its appealing provisions such as prohibiting insurance companies from denying coverage because of pre-existing condition and allowing children to be on parents’ insurance until age twenty six. The opponents argue the law should be repealed because it discourages small businesses from hiring; it imposes the largest tax increase in US history and will serve as a drag on the economy.  This call to repeal the law has been heeded by the majority party in the U.S. House of Representatives. Due to election year politics, little is said in the post-ruling healthcare debate about the effect of rising healthcare costs  on the national debt and the measures that should be put in place to return our nation to fiscal sanity.

The fact of the matter is healthcare reform is a sensitive issue that has plagued this nation for so long, and many past presidents from Eisenhower to Nixon and Clinton had unsuccessfully tried to address the problem due to  strong opposition from special interests. Given the financial might of these special interests and their ability to influence legislation through campaign contributions, it is unlikely that the repeal of ACA will pave way for any new meaningful comprehensive legislation that will make a significant dent in the massive federal deficit. If healthcare reform was that easy, it would have been accomplished long before the current administration took office. Rather than scoring political points on both sides of the isle, lawmakers need to put the interest of the nation first and make the tough choices that will steer the financial ship of our nation to a safety anchorage.

Studies show that the U.S. spends at least twice as much as most industrialized nations on healthcare. The U.S. healthcare spending reached nearly $8,000 per person in 2009, and has outpaced  the growth of gross domestic product (GDP) for the past several decades. Certainly, ACA’s goal of providing health insurance for the almost 45 million Americans who do not have coverage while controlling the cost of Medicare and overall healthcare spending is a laudable one. However, from fiscal policy perspective, whether the provisions of the law will make significant contributions to deficit reduction is subject to debate. The federal government currently runs an annual deficit in the neighborhood of $1.2 trillion or about 7 percent of GDP. It is an open secret that Medicare spending contributes significantly toward the federal deficit and the national debt. Congressional Budget Office (CBO) sources indicate in fiscal year 2010, Medicare expenditure totaled $524 billion and accounted for 15 percent of all federal outlays, exceeded only by Social Security benefits and defense spending, each of which accounted for 20 percent.

Many experts conclude the higher U.S. healthcare spending is due to higher provider and drug prices, increasing volume of services,  and perhaps more readily accessible technology. The ACA contains certain provisions to control healthcare spending, and these need to be effectively implemented, monitored and improved if meaningful savings are to be realized. Among these provisions include 1) reduced payments to providers and Medicare advantage plans, 2) an independent payment advisory board to keep Medicare program spending within certain targets, 3) a shift of provider incentives away from increasing the volume of services toward incentives for improving quality and care coordination, 4) adjustments of certain beneficiary premiums to increase beneficiary contributions, 5) health insurance exchanges to help expand coverage,  6) employer and individual mandates aimed at increasing coverage, and 7) penalties for those who refuse to comply with the mandate. As a result of the premium adjustments, between 2010 and 2019, the share of Medicare beneficiaries paying income-related Part B premium is projected to rise from 5 percent to 14 percent. Furthermore, the premium for higher income beneficiaries enrolled in the Part D prescription drug plans will increase.

An independent analysis by the Kaiser Family Foundation using 2010 CBO estimates showed that on a net basis, the implementation of ACA will reduce Medicare spending by an estimated $424 billion for the 10 year  period from fiscal year 2010 through fiscal year 2019. This implies a 6 percent reduction from spending that had been projected for that period, which is smaller than the 12 percent reduction in projected baseline Medicare spending included in the Balanced Budget Act of 1997. The  March 2012 CBO Medicare baseline projections  show a  6.3 percent average annual growth rate of mandatory spending from 2012 through 2022. History tells us that healthcare projections tend to be notoriously inaccurate, and unless comprehensive and enforceable solutions are implemented,  Medicare and total healthcare spending is likely to continually increase at an alarming rate.

When Medicare was first enacted in 1965, lawmakers predicted it would cost $9 billion by 1990. In fact, it cost $67 billion that year.  When the Medicare Part D prescription drug benefit was added by Congress in 2003, the advertised price tag was $400 billion over 10 years but in 2005, Medicare officials projected the cost to be $724 billion from 2006 through 2015. In fact, the prescription benefits, which were initially provided to all seniors without regard to income, accounted for two-thirds of the $72 billion increase in Medicare program outlay for 2005-2006 alone. While helping needy senior citizens to cope with skyrocketing prescription costs is a good idea, it is fair to note that extending the benefit to wealthy seniors who do not need it was not in the best fiscal interest of the nation.

Although the projected reductions in Medicare spending in ACA are not likely make a significant contribution to deficit reduction, the growth rate of healthcare expenditure can be reduced if the law is effectively implemented, monitored and improved. Indeed, the provisions aimed at controlling costs make it imperative for policy makers to find ways to improve the law and significantly increase healthcare savings, in the supreme interest of the nation, rather than repealing it. One way is for Congress to take a cue from the Heritage Foundation’s Saving the American Dream, and restructure the existing taxpayer subsidies for upper-income retirees and gradually phase out the subsidies for wealthiest Americans to help strengthen the program and make it solvent for future retirees. Additionally, enforceable measures should be put in place to minimize adverse selection and administrative costs in the health insurance exchanges to help accomplish their goal of expanding coverage and lowering costs. The current size of the federal deficit cannot be financed in the long-term because the nation’s debt burden will become unmanageable and unsustainable, hence the need to avoid policy actions that will worsen the financial plight of America.



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