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GAO on the Effect of the PPACA

By March 4, 2013Commentary

The federal health reform law’s effect on overall federal spending was hotly debated when the law was being passed, with the Administration and its Congressional allies insisting that it would reduce spending in the short and long run.  The law increases spending by subsidies to people who will buy insurance in the exchanges, by a Medicaid expansion to be largely paid for by federal funds and by increased administrative spending in the billions and tens of billions of dollars.  It raises revenue through a series of taxes on various health care segments and by an increase in the Medicare tax on individuals, as well as penalties on people who don’t get insurance.   But to make the math work, aside from some gimmicks like kicking the revenue provisions in before the spending ones, the law’s proponents also assumed that certain “cost containment” provisions would more than offset the increased spending likely under the law.  An updated report from the Government Accounting Office examines the likely overall effects of the act on federal spending, which really is guesswork.  (GAO Report)

The report is very skeptical about the longevity and effectiveness of the cost containment provisions, following the lead of the Congressional Budget Office and the CMS Office of the Actuary.  It first notes that the Medicare physician payments are likely to be higher than current law assumes and that Medicare productivity adjustments for other provider types cannot be sustained without likely harm to beneficiary access.  The GAO also expressed concern about whether exchange subsidy growth will in fact be limited.  No matter which scenario is used in regard to the effects of the reform law, the GAO says that the country remains on an unsustainable debt path, crossing 100% of GDP before 2020 in a more realistic, but probably still optimistic scenario.  Leaving aside its revenue effects, the reform law increases federal spending very rapidly, and the costs almost certainly will be much higher than currently forecast.  And the law appears unlikely to be beneficial to the general economy, with new taxes taking money from the private sector and employers changing hiring and pay practices due to the law.

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