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The ACA Is the Problem, Not CBO

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The ACA Is the Problem, Not CBO

June 25, 2014

Lately there has been a flurry of articles and columns about how the Congressional Budget Office is no longer able to tell us whether the Affordable Care Act will reduce or worsen the federal budget deficit. Those interested in federal budget policy should understand an important

truth underlying this coverage: the problem here lies not with CBO, it is with the ACA. While the ACA’s costs are proving real, several of its provisions designed to produce budget savings are not yet doing so.

I believe it is important to clarify this distinction because much of this evolving press story derives from my own research and analysis. Over the past few months I have explained how the ACA’s finances are unraveling as its various cost-saving provisions remain unenforced or are delayed, scaled back, suspended, or repealed. These findings were picked up in CQ, Roll Call, and other press outlets, with particular attention to CBO’s assertion that it could no longer analyze the net fiscal effect of the ACA. Whereas my analysis had focused on the largely-unreported story of the ACA’s financial unraveling, others had taken CBO to task for a perceived failure to inform Congress and the public of the worsening outlook.

Last week CBO Director Doug Elmendorf posted a blog entry explaining the situation and responding to some of the criticisms. Here I will sift out four salient points from his post, the last of which I will caveat.

1) CBO cannot measure the exact budgetary effects of such legislation even after the fact; it can only estimate them. Here is Elmendorf on this point:

“Because the ACA is part of current law, its budgetary effects would now need to be estimated relative to a counterfactual benchmark that excluded the ACA. CBO does not construct such a counterfactual benchmark for all of the ACA, and attempting to do so would raise significant challenges.”

Translated: all that CBO—or anyone—can measure is the amount of money actually spent and the amount of revenues actually collected. Truly measuring the ACA’s net effect would require us to know exactly how much would have been spent/collected if the ACA had not been passed. This is not precisely knowable. Had the ACA not existed, CMS would have established different program rules and payment rates, and no one knows exactly what those would have been. Nor can we know for certain how much health service consumption and costs would have grown in a world without the ACA.

2) This situation is not unique to the ACA; it exists with most laws, and is why CBO does not continually re-estimate their effects after the fact. Again, here is Elmendorf:

“That problem is by no means unique to the ACA… rather, the problem is common to all legislation that changes existing federal programs or tax provisions with results that cannot be clearly distinguished from what would have occurred under previous law.”

3) Even scoring a proposal to repeal the ACA would not tell us the ACA’s net fiscal effect. The effect of repeal would not be the opposite of the ACA’s. Elmendorf:

“Whether a proposal to repeal the ACA specified alternative policies or not, its budgetary effects would not simply be the opposite of the budgetary effects of the ACA itself.”

There are several reasons for this. One is that the ACA itself affects the behaviors of individuals and institutions; some of those effects are likely to linger even after repeal, so scoring a repeal does not tell us how the world would have looked if the ACA had never existed. Second, repeal does not undo all costs associated with the ACA. It is highly unlikely that if the ACA were first passed and later repealed, the net budget effect would be zero. More likely, the sequence would have a net negative effect upon the federal budget. 

4) CBO is better able to provide updated scores for some parts of the ACA than others; in particular, CBO has been able to re-score the ACA’s coverage expansion provisions because most of these were not effective until this year. Quoting:

“Under CBO and JCT’s normal procedures, the agencies still produce separate estimates of the effects of the ACA’s provisions related to insurance coverage, in part because those provisions established entirely new programs or components of programs and in part because those provisions are mostly being implemented in 2014 or later… Hence, their budgetary consequences can be isolated and reassessed, and the counterfactual—what would have happened to those components of the budget in the absence of the ACA—is clear: Those amounts would have been zero.”

This is the one point CBO has made that I would quibble with; I do not believe that the fiscal effects of the ACA’s coverage expansion can be evaluated with a certainty unique among its various provisions. It is far from unambiguous, for example, how many previously-eligible individuals are gaining Medicaid coverage solely because of the ACA. We know that some such individuals are signing up for Medicaid under old-law reimbursement rates under the ACA’s outreach processes—the so-called “woodwork effect” that was both predicted before the ACA and substantiated after enactment. But no one knows for sure how many of these individuals would be signing up for Medicaid if the ACA had not been passed. CBO would be on firmer ground in asserting that it cannot update its overall ACA score if it had not also been periodically updating its score of its coverage expansion provisions, which also requires some guesswork.

Now, none of this is to suggest that just because CBO cannot precisely measure something, there is no value in its estimating it. After all, Congress bases many budget procedures on CBO’s forward-looking estimates of proposed legislation. Clearly, however, this story is not about CBO’s simply declining to measure knowable effects of the ACA. It is instead about this problematic chain of events:


  1. The original score of the ACA was based on the assumption that various controversial cost-savings provisions would be implemented. 
  2. In many instances those cost-savings provisions have not been implemented.
  3. Thus, the actual fiscal effect of the ACA is significantly different than originally scored.
  4. We do not know how different because Congress’s scorekeeper does not typically re-evaluate legislation after enactment.
  5. More generally, there is no mechanism for informing Congress and the public when the initial depiction of a law’s fiscal effects differs significantly from subsequent reality.

 

In other words, the source of the problem is that the ACA is not being implemented as it was originally written. If this were simply a matter of lawmakers later repealing or scaling back various provisions of the ACA, at some point CBO would be called on to score those changes, informing both Congress and the public (at least indirectly) that the original score of the ACA no longer held. 

But because the ACA’s financial unraveling has taken place largely via administrative actions, causing fiscal results that deviate markedly from the law’s original score, this deviation does not show up in any revised accounting of its fiscal impact. The original evaluation of the ACA has been overtaken by events, but no one is the wiser. That is a major public policy problem that transcends any decisions by the CBO.

 

Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.

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