Yosuke Matsuoka Liveblogs World War II: January 21, 1941
Hoisted from Comments: Thinking About Aristotle of Stagira and Moses Finley

Department of "Huh?!" (Long Run Fiscal Outlook §9001 of the Affordable Care Act Department)

People who disagree with the CBO score of the ACA rarely, rarely say why they disagree with the CBO score.

For example, Clive Crook:

Is Health Care Reform Fiscal Reform?: The [Affordable Care Act] might reduce the deficit, and restrain health costs more broadly too, if it really did spur innovations of the kind described in Atal Gawande's latest fine piece for the New Yorker--and if these ideas were widely taken up, and if every other good thing the act envisages comes to pass. My own guess is that it will take improbably zealous execution, constant vigilance, and further legislation too for this rosy scenario to come true, and I rate the chances of all that working out pretty low. Also bear in mind, since the plan will be amended in Congress and revised administratively every which way, and since the counterfactual of no ACA will be unavailable, we might never know whether ACA in the form just passed would have been deficit-reducing or deficit-increasing. It's guesswork now, and probably always will be. As I say, my own guess would be deficit-increasing--and, if taxpayers are unlucky, very much so...

Journal of Accountancy:

Tax Provisions in the Health Care Act: New IRC § 4980I imposes an excise tax on insurers if the aggregate value of employer-sponsored health insurance coverage for an employee (including, for purposes of the provision, any former employee, surviving spouse and any other primary insured individual) exceeds a threshold amount. The tax is equal to 40% of the aggregate value that exceeds the threshold amount. For 2018, the threshold amount is $10,200 for individual coverage and $27,500 for family coverage, multiplied by the health cost adjustment percentage (as defined in the act) and increased by the age and gender adjusted excess premium amount (as defined in the act). The provision is effective for tax years beginning after Dec. 31, 2017...

To wit:

http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdfSEC. 9001. EXCISE TAX ON HIGH COST EMPLOYER-SPONSORED HEALTH COVERAGE.

(a) IN GENERAL.—Chapter 43 of the Internal Revenue Code of 1986, as amended by section 1513, is amended by adding at the end the following:


(a) IMPOSITION OF TAX.—If— ‘‘(1) an employee is covered under any applicable employer-sponsored coverage of an employer at any time during a taxable period, and

(2) there is any excess benefit with respect to the coverage, there is hereby imposed a tax equal to 40 percent of the excess benefit....

(C) APPLICABLE DOLLAR LIMIT.—Except as provided in subparagraph (D)—(i) 2013.—In the case of 2013, the dollar limit under this subparagraph is—(I) in the case of an employee with self-only coverage, $8,500, and (II) in the case of an employee with coverage other than self-only coverage, $23,000....(iii) SUBSEQUENT YEARS.—In the case of any calendar year after 2013, each of the dollar amounts under clauses (i) and (ii) shall be increased... by an amount equal to the product of—(I) such amount as so in effect, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for such year... increased by 1 percentage point...

To translate this back into English: It imposes is a 40% tax on the high-cost component of the value of any health insurance plan, with the threshold of "high cost" growing by the rate of CPI inflation plus 1% per year thereafter.

Either health-care costs do not grow faster than GDP in the future, or they do.

If health-care costs do not grow faster than GDP in the future, then we don't have a long-run fiscal deficit problem at all.

If health-care costs do grow faster than GDP in the future, then family insurance costs will rapidly breach the $23K-in-2013-plus-inflation-plus-1%-per-year, and we will be imposing a 40% tax on a larger and larger proportion of health insurance payments. That tax will raise a lot of revenue in the 2020s, remarkable amounts of revenue in the 2030s, and unbelievably large amounts of revenue in the 2040s and the 2050s. And these revenue increases overwhelm the extra spending to cover the 30-plus million uninsured that the bill will cover.

Future congress may well repeal or suspend the operation of or cut back on Section 9001.

But if and when they do, it is their actions that increase the long-run deficit--not the ACA.

To say that the ACA might bust the budget--rather than that future congresses may amend the ACA to bust the budget--is simply wrong.

This isn't rocket science, people. §9001 is not a secret, people.

Context: CBO to Rep. Paul Ryan, March 19, 2010:

You also asked about the effects on the federal budget beyond the 2010–2019 period of enacting the reconciliation proposal (the amendment to H.R. 4872) and the Senate-passed health bill (H.R. 3590) if several provisions were altered, either now or at some point in the future. In particular, you asked about the effects if:

  • the [§9001] excise tax on insurance plans with relatively high premiums—which would take effect in 2018 and for which the thresholds would be indexed at a lower rate beginning in 2020—was never implemented;

  • the annual indexing provisions for premium subsidies offered through the insurance exchanges continued in the same way after 2018 as before—in contrast with the arrangements under the reconciliation proposal, which would slow the growth of subsidies after 2019;

  • the adjustment to payment rates for physicians under Medicare contained in H.R. 3961 and described above was included; and

  • the Independent Payment Advisory Board—which would be required, under certain circumstances, to recommend changes to the Medicare program to limit the rate of growth in that program’s spending, and whose recommendations would go into effect automatically unless blocked by subsequent legislative action—was never implemented.

A detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful over a longer horizon because the uncertainties involved are simply too great. Among other factors, a wide range of changes could occur—in people’s health, in the sources and extent of their insurance coverage, and in the delivery of medical care (such as advances in medical research, technological developments, and changes in physicians’ practice patterns) —that are likely to be significant but are very difficult to predict, both under current law and under any proposal.

CBO has therefore developed a rough outlook for the decade following the 10- year budget window. Under the analytic approach described in the agency’s previous letters, the combined effect of enacting H.R. 3590 and the reconciliation proposal would be to reduce federal budget deficits over the decade beyond 2019 relative to those projected under current law—with a total effect during that decade in a broad range around one-half percent of gross domestic product (GDP). If the changes described above were made to the legislation, CBO would expect that federal budget deficits during the decade beyond 2019 would increase relative to those projected under current law—with a total effect during that decade in a broad range around one-quarter percent of GDP.