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I Was Right About the ACA

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I Was Right About the ACA

June 30, 2014

Around and after the time that the Affordable Care Act was enacted, many analysts identified problems with claims being made about the law, and we offered explanations of its likely actual effects. Too often these were brushed aside amid efforts to promote the ACA

in the face of growing public opposition. But four years into the ACA, it is remarkable how well our predictions have been borne out.

Below I will resurrect but five of my own specific predictions about the ACA, contrast them with what many advocates had said, and review what subsequent events have shown.

#1: States will make a variety of decisions with respect to expanding Medicaid.

What I predicted: “In contrast with some statements made by both supporters and opponents of the ACA, the complexities of these decisions suggest that states should be expected to make a wide variety of policy choices.”

Advocates’ claims: “All these states will opt in. Every one.” (Jennifer Granholm) “The deal the federal government is offering states on Medicaid is too good to refuse. And that’s particularly true for the red states. If Mitt Romney loses the election and Republicans lose their chance to repeal the Affordable Care Act, they’re going to end up participating in the law. They can’t afford not to.” (Ezra Klein)

What has happened: As of June, 2014, the Kaiser Family Foundation lists 27 states (including Washington, D.C.) as “implementing expansion,” 21 as “not moving forward at this time,” and 3 in “open debate.”

#2: Expanding Medicaid will cost the states money, in part because of the “woodwork effect.”

What I predicted: “Projections indicate that... covering newly eligible individuals as well as increased numbers of those previously eligible (but yet uncovered) would add substantially to state budget costs. Effective (federal support) rates associated with expansion will be lower than those expressly provided for in the ACA because of the ‘woodwork effect’ of previously eligible individuals being brought under Medicaid.”

Advocates’ claim: “There has been some concern in state capitals surrounding this proposal given the possible increase in state Medicaid expenditures that could result... The move to greater insurance coverage would likely result in substantial savings for state and local governments. Rather than harming the budget situation of the states, health insurance reform would improve it.” (CEA, Obama White House)

What has happened: “At least a couple of states have already cited higher-than-expected costs... California officials on Tuesday said the woodwork population is expected to grow 60 percent more than what they had expected, costing the state additional $1.2 billion. Rhode Island is now expecting to pay $52 million more than previously projected over two years after Medicaid sign-ups beat expectations by more than double... This graph from a December 2012 NASBO report shows how Medicaid has been taking a greater portion of state general funds, while education spending has decreased.”

#3: The ACA will significantly worsen the federal budget deficit.

What I predicted: “The Affordable Care Act (ACA) enacted in 2010 will significantly worsen the federal government’s fiscal position relative to previous law... These adverse fiscal effects are not everywhere understood because of widely circulated analyses referencing scoring conventions of the Congressional Budget Office (CBO)... which compare the health care reform legislation to a baseline scenario that differs from actual law.”

Advocates’ claim: “According to the official Administration and Congressional scorekeepers, the Affordable Care Act will reduce the deficit: its costs are more than fully paid for.” (White House Blog)

What has happened: Two months after my study was published, CBO’s next long-term budget outlook clarified explicitly that I was correct: CBO’s baseline comparison that appeared to show the ACA reducing the deficit did not reflect how it changed actual law: “Projections in this report are consistent with a statutory requirement that CBO, in its baseline projections, assume that benefit payments will continue to be made after trust funds have been exhausted, even if there is no legal authority to make such payments.”

#4: Expanding health insurance coverage will increase health service consumption and costs.

What I predicted: “The same report found that the uninsured received only about 55 percent of the total medical care received by the insured population and that, if covered, per-person health spending for the uninsured would increase by 39 percent... Thus, taking important relevant factors into account, including both the higher amount of health services received by the uninsured and the woodwork effect of newly covering those previously eligible, it appears likely that expanding Medicaid coverage would add substantially to state budget costs.”

Advocates’ claim: “It is deficit-neutral; it bends the cost curve; it covers 30 million Americans who don't have health insurance... to make sure that people are getting the care they need and the checkups they need and the screenings they need before they get sick—which will save all of us money and reduce pressures on emergency rooms all across the country.” (President Obama)

What has happened: “As the health-care law expands Medicaid to cover millions more Americans, a new Harvard University study finds that enrollment... significantly increases enrollees' use of emergency departments.”

#5: There was a substantial risk that cost savings projected for several ACA provisions would not fully materialize.

What I predicted: “The legislation employs comparatively uncertain cost-saving measures as budgetary offsets for comparatively certain cost-increasing provisions... The proceeds of such cost-savings cannot safely be spent until they have verifiably accrued.”

Advocates’ claims: “$750 billion in reliable revenues and savings... $145 billion saved... by phasing out overpayments to... Medicare Advantage... $69 billion in penalties paid by employers and individuals who choose not to purchase insurance... $32 billion raised by taxing very expensive (“Cadillac”) health insurance policies... The numbers on this list do not represent ‘hoped-for’ savings... These are firm estimates that CBO was able to ‘score’ with some confidence, based on known facts and solid historical data.” (Maggie Mahar, Century Foundation)

What has happened: The employer and individual mandates have not been enforced and there is mounting pressure for repeal. Planned Medicare Advantage cuts have been scaled back. The Cadillac plan tax has not yet taken effect and labor unions are mobilizing against its implementation. 

While I got this basic story right, I did miss some details. In 2012 I predicted that ACA provisions such as the Cadillac plan tax, Independent Payment Advisory Board, and Unearned Income Medicare Contribution would face obstacles to implementation, but did not anticipate similar blocking of the employer and individual mandates and the Medicare Advantage cuts.

In any event, the first years of ACA implementation have unfolded essentially as I anticipated in my 2012 and 2013 studies. The point is not that I am omniscient or that I have a special gift for anticipating unknowable outcomes. Rather, these statements resulted from straightforward, common-sense analysis of easily predictable effects. 

While we cannot erase past policy mistakes, going forward we should make better use of predictive information widely available to lawmakers, press and public, than was done in the case of the ACA.

 

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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