Will Health Care Reform Reduce the National Debt?

John Holahan has a nice RWJ issue brief summarizing how health reform will affect the federal budget.  This spreadsheet I made has a summary of the CBO projections.  The CBO claims that over the next 10 years, expansions to Medicaid and CHIP and the subsidies for the health insurance exchange will increase the deficit by about half a trillion each. Medicare cost cutting, however, should save a little over $0.5 trillion and increase revenues should also save $0.4 trillion. Thus, the CBO claims that the net effect of health reform will be a net decrease in national debt.

Although Holohan claims that the Medicaid projections seem reasonable, he rightfully has some doubts as to whether the Medicare cuts will come about. “”

Another uncertainty is that the law has assumed that the cuts in Medicare payments to hospitals, hospices, nursing homes, and home health agencies, with payment increases below the rate of inflation, can be sustained. The assumption is that there will be ongoing ―productivity improvements in the delivery of health care that will then be returned to the taxpayer. To the extent that providers are successful at lobbying for legislation that reduces cuts of this magnitude, the savings will be reduced and the deficit will be higher than projected.

I think it is very doubtful that CMS will be able to sustain these cuts to Medicare.  The sustainable growth rate (SGR) was also supposed to slow the growth of physician compensation over time.  Every year, however, Congress overturns the SGR and physician compensation does not decrease.  Thus, the Medicare cuts are likely optimistic.  Further, if the cost of health insurance rises faster than expected, than subsidies plans in the health insurance exchange may also have to rise.

Overall, I am very doubtful that health reform will reduce the deficit, regardless of the CBO figures.

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