The Fiscal Consequences of the Affordable Care Act

Charles Blahous, Mercatus Center: The Patient Protection and Affordable Care Act (ACA) signed into law by President Obama in 2010 will significantly worsen the federal government’s fiscal position relative to previous law. Supporters argued that this comprehensive health care reform would deliver a much-needed correction to the government’s unsustainable fiscal outlook and would benefit the country’s overall fiscal situation. However, between now and 2021, the ACA is expected to add as much as $530 billion to federal deficits while increasing spending by more than $1.15 trillion. Despite the fondest hopes from its supporters, the passage of the ACA unambiguously darkens a dim fiscal picture.

The federal government promised the health care law would finance two different activities-increasing Medicare solvency and extending health care coverage, but with only enough savings to pay for one. Thus, the ACA’s total new spending well exceeds its cost-savings provisions. In 2014, the benefits will kick in and as history shows, it is nearly impossible to take benefits away after they are given. To ensure the ACA does not worsen the federal fiscal outlook, fully two-thirds of the ACA’s new health-exchange subsidies must be repealed, or financing offsets must be found before 2014.

Again, the bill promised to find savings in the government's biggest health insurance program, Medicare, and use those savings to reduce the deficit. Second, the bill promised to expand health care coverage to uninsured Americans. Sounds pretty good, right? But how does the government propose to pay for both? Here's where the math becomes fuzzy. View the following video then look at the full research paper, brief summary, and chart that illustrate our research on the fiscal consequences and outlook of the health care law.

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Dr. Charles Blahous is a senior research fellow at the Mercatus Center and public trustee for Medicare and Social Security. His primary research interests include retirement security, with an emphasis on Social Security and employer-provided defined benefit pensions, as well as federal fiscal policy, entitlements, demographic change, economic stimulus, financial market regulation, and health care reform.

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