Obamacare is not ready for prime time.
Though the Patient Protection and Affordable Care Act was passed in March 2010, most of its key provisions don’t start until January 2014. That is when “exchanges” are supposed to begin offering insurance policies with income-tested premium subsidies and substantially different insurance regulations.
So Congress has the opportunity to improve the budget outlook and improve health policy by just delaying the act’s implementation.
Why? As the recent demise of the CLASS Act, or Community Living Assistance Services and Supports Act, makes clear, much of the Affordable Care Act was slapped together with insufficient due diligence to make sure it could actually work.
The law is now on shifting legal and political ground. Many of its rules are unworkable, and implementation is well behind schedule. Even where it seems feasible, evidence is growing that the substantial infrastructure—notably the exchanges and related insurance subsidies—won’t be ready by 2014.
Meanwhile, serious legal challenges are pending. There also remain significant political disagreements over the merits of many provisions—likely to be debated extensively during the 2012 presidential campaign.
In this environment, it makes sense to clarify the future of health policy. Delaying the Affordable Care Act for two to four years would permit exactly that.
When it passed, the act’s health provisions were expected to reduce the federal budget deficit by $124 billion over 10 years, according the Congressional Budget Office. Within that total are numerous spending increases, spending cuts, tax increases and tax reductions. The provisions with the most significant budgetary consequences are: first, expanded eligibility for the Medicaid program; second, premium credits payable to households with incomes between 133 percent and 400 percent of the federal poverty line, which are enrolled in health insurance plans offered in the state exchanges; third, targeted cuts in spending in the Medicare and Medicaid programs; and fourth, new tax hikes on insurance premiums, drug manufacturers and upper-income households.
There are multiple ways to construct a freeze or delay of the act, with targeted exceptions to achieve any desired budgetary goal. For example, the main features of the state-based exchanges, along with the insurance rules that are to go into effect at that time, could be delayed for two, three or four years.
In addition, the main tax increases and other spending provisions could be delayed in a similar manner—with targeted exceptions on a few spending reductions to ensure that the act’s delay is scored by the CBO as deficit reduction.
To gain an idea of the opportunity facing Congress, our recent research estimated the effect of delaying the entire state exchange structure. We looked at postponing the premium credits, the insurance rules that become effective with the exchanges, the Medicaid eligibility expansion, the medical-loss ratio requirement that became effective in 2011, the cuts in Medicare spending (with some exceptions, like the hospital readmission payment adjustment) and all the tax increases contained in the Affordable Care Act (except the high-cost insurance tax that does not become effective until 2018 anyway, and the tax adjustment in the biofuels tax credit program).
What are the budgetary implications? In every case, the 10-year savings would be significant: $176 billion from a two-year delay, increasing to $308 billion from a four-year delay.
Looking at it another way, the savings over four years would be about a third of the deficit reduction goal that the Joint Select Committee on Deficit Reduction must achieve (not counting net interest savings) to avoid across-the-board spending cuts starting in January 2013.
The federal budget is already buckling under the weight of existing entitlement promises. The health care act would pile on top of these unaffordable commitments an additional $1 trillion in costs over the coming decade.
Congress and President Barack Obama agreed this summer that widening deficits and growing debt threaten our economic future, and something must be done to get our nation’s fiscal house in order. A good start would be to agree to delay initiating the new spending in the Affordable Care Act so that a broader and more stable bipartisan consensus can be built around fiscally sustainable entitlement and tax policy.
James C. Capretta is a fellow at the Ethics and Public Policy Center and a former associate director at the White House Office of Management and Budget. Douglas Holtz-Eakin served as a director of the Congressional Budget Office from 2003 to 2005. He is now president of the American Action Forum.