Obama Budget Sees Deficit Reduction From Health Law

Obama Budget Sees Deficit Reduction From Health Law
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President Obama told Congress Tuesday the nation could inch closer to a balanced budget in a decade, thanks (in part) to billions of dollars in savings made possible through provisions of the Affordable Care Act.

The president may see the proof he seeks before leaving office in 2017, but experts say it is still too soon to calculate how the embattled 2010 law will impact the overall budget in 2024. Obama, who sent Congress his budget blueprint for the year that will begin Oct. 1, touted the downward trend in federal health care spending achieved as the health reform law has been implemented.

“This budget will continue to put our fiscal house in order over the long-term -- not by putting the burden on folks who can least afford it, but by reforming our tax code and our immigration system and building on the progress that we’ve made to reduce health care costs under the Affordable Care Act,” Obama said during an event at a Washington-area elementary school.

But the Congressional Budget Office, which serves as the scorekeeper for the legislative branch, believes it will take several more years before the government can accurately gauge the enduring fiscal impacts of the president’s signature legislative achievement.

Obama’s annual budget, which includes $3.9 trillion in spending, predicts the ACA will trim deficits over the next decade by $402 billion, and by about $1 trillion in the decade beyond that.

Among other policies credited with driving down deficits under Obama’s plan: revenue increases (many of which are opposed by Republicans, but projected to lower deficits by $651 billion over 10 years); a $158 billion bonanza drawn from immigration reforms (legislation is stalled in the House); $188 billion in 10-year savings on the accumulated debt; and $695 billion in long-term savings from exiting Afghanistan and trimming spending for what the Bush administration called the war on terror and the Obama administration calls “overseas contingency operations.”

For the time being, Obama’s calculations are intended to help Democrats during their election-year storytelling as they woo voters to turn out in November. Congressional Republicans insist the president’s budget is dead on arrival on Capitol Hill, even among some Democrats who fear defeat in conservative-leaning states.

As a way to argue the federal government can spend more on favored programs in order to create jobs and spur economic growth, the administration focused on health care spending, which it said rose at an annual rate of just 1.1 percent in real inflation-adjusted per capita terms from 2010 to 2012, compared with 4 percent in previous years.

Citing support from independent analysts, the White House argued that slowed health spending appears to be a structural improvement -- meaning the president is banking on the gains as a recurring fiscal feature, rather than as a near-term blip. White House National Economic Adviser Gene Sperling, who is leaving his job Wednesday to rejoin his family in California, said last month that Tuesday’s budget proposals represented Obama’s “ideal vision.”

“One notable structural factor contributing to the slowdown [in health costs] is the Affordable Care Act (ACA),” the budget said. According to the administration, the law “is lowering costs and improving quality by reducing excessive Medicare payments to private insurers and providers, deploying new payment models that encourage more efficient, higher-quality care, and creating strong incentives for hospitals to reduce readmission rates.”

But CBO, which will unveil another in a series of ACA evaluations this spring, believes the changes occurring in Medicare spending are subtle, are challenging to peg exclusively to the reform law, and require ongoing research.

“I think economists will study the question -- how much the Affordable Care Act is mattering for health care costs -- and then we'll know. We don't know now,” CBO Director Douglas Elmendorf told RCP on Feb. 18 during a roundtable discussion sponsored by the Christian Science Monitor.

“The Affordable Care Act brought down payments to Medicare providers relative to what they would have been otherwise. So that reduces federal health care spending and national health care spending,” he said. “But the more indirect effects the law may be having on the way medicine is practiced in the private sector is not something [for which] we have any analysis to bring to bear at the moment.”

And when does CBO believe well-researched answers will be available? Elmendorf said it would take “a few years.”

But inside a sparsely populated White House auditorium Tuesday, the president’s senior policy advisers told a clutch of reporters that deficits would drop to 1.6 percent of the economy’s output by 2024, provided Congress adopted the president’s policies -- including immigration reforms -- and left the ACA as enacted.

Council of Economic Advisers Chair Jason Furman said the economic downturn undeniably curbed Medicare spending in recent years. But he said actuaries for the Medicare program, CBO analysts, and the administration’s experts “all assume that a lot of those effects will continue.”

“It's been a combination of policies in the Affordable Care Act that have helped reduce the cost and increase the quality, as well as underlying structural changes in the health system,” Furman said.

Alexis Simendinger covers the White House for RealClearPolitics. She can be reached at asimendinger@realclearpolitics.com.  Follow her on Twitter @ASimendinger.

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