Researcher: Healthcare Law Postpones Medicare Cuts but Adds $340 Billion to Deficit

Although provisions under President Obama’s healthcare law will extend the Medicare program’s solvency, it will also add more than $340 billion to the nation’s deficit in the next ten years, according to a recently released study by conservative policy analyst Charles Blahous.

Blahous, who serves as the GOP trustee for Medicare and Social Security, challenges the notion that healthcare reform will reduce deficits by raising taxes and cutting payments to Medicare providers. The Affordable Care Act, he writes in an article posted on Economics21, “unambiguously worsens federal finances.”

“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said in an interview. “If one asserts that this law extends the solvency of Medicare, then one is affirming that this law adds to the deficit. Because the expansion of the Medicare trust fund and the creation of the new subsidies together create more spending than existed under prior law.”


As Blahous writes for Economics21:

The ACA contains many provisions designed to slow the growth of Medicare spending. This matters here because the federal Medicare program is financed in a particular way—from special, separate trust funds. The Medicare Hospital Insurance (HI) Trust Fund in particular is governed under law by certain rules. Medicare HI is only permitted to spend money on benefits as long as there is a positive balance in its trust fund. If that trust fund is depleted, then under law benefit payments must automatically be cut to the level that can be financed from incoming tax revenues.

This is relevant to an evaluation of the ACA because the CMS Medicare Actuary has projected that had the ACA not been passed the Medicare HI Trust Fund would have been depleted in 2016. If that were allowed to happen, Medicare HI payments would have been sharply cut in that year.


Due to the ACA’s Medicare cost-savings provisions, however, these automatic spending cuts are no longer projected to begin in 2016. Medicare HI is now projected to remain solvent until 2024, postponing forced outlay reductions until then. In other words, the ACA’s Medicare provisions decrease the level of Medicare HI spending prior to 2016, but then increase it from 2016-2024 relative to previous law. Considered separate and apart that would be a good thing, but it has inescapable fiscal ramifications in the context of the ACA’s other spending expansions.

While the healthcare law provides about $575 billion in Medicare savings, representing enough to extend the trust fund’s solvency through 2029 and avoid a sharp cut in benefits, according to some estimates, those same savings are also supposed to offset an upcoming national expansion in Medicaid eligibility, according to the Congressional Budget Office.

The CBO has previously produced projections suggesting that without those Medicare savings, the law would increase the federal deficit by $226 billion through 2019, rather than decrease it by $131 billion.

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“Properly understood, the ACA stands to precipitate dire fiscal consequences,” says Blahous. “To forestall these, sharp corrections are required before 2014, when millions of Americans would begin to depend on its various new benefits.”

View Blahous’ research, The Fiscal Consequences of the Affordable Care Act, here.

Written by Alyssa Gerace

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