GOP Health Plan Reduces the Federal Deficit by $2.4 Trillion Over Two Decades

GOP Health Plan Reduces the Federal Deficit by $2.4 Trillion Over Two Decades

State Budgets, Consumers and Hospitals Will Be Hard Hit


The House GOP proposal for replacing the Affordable Care Act not surprisingly would save the government $337 billion over the coming decade—as the Congressional Budget Office (CBO) projected in a much-anticipated report last week.

The combination of eliminating the mandate for Americans to purchase health insurance, repealing tens of billions of Obamacare tax increases, and gradually slashing and downsizing Medicaid for the poor would result in 24 million fewer people enrolled in health insurance by 2026, the CBO reported.

Related: Trump May Have Just Handed Conservatives a Loss on Obamacare Repeal

While the CBO  analyzed the proposed American Health Care Act (AHCA) through the prism of a ten-year budget window, a new analysis by the Committee for a Responsible Federal Budget concluded that the Republican plan – for all its many flaws – would reduce the federal deficit by a net $2.4 trillion over a 20-year period.

The admittedly “rough” calculations by the CRFB, a prominent anti-deficit research group, claimed the bill if enacted would save $2 trillion over the coming two decades, including $1.6 trillion between 2027 (where CBO leaves off) and 2036. Factoring in an estimated $400 billion of interest on the federal debt that the government would save through reduced spending, CRFB puts the total two-decade savings at $2.4 trillion.

The new findings should provide the Trump administration with something to crow about in backing the health care plan which is likely to be brought up for a vote on the House floor on Thursday. Trump and his Republican allies have been repeatedly pounded by CRFB, the Concord Coalition and other fiscal watchdog groups for promoting budget and tax policies likely to drive up the deficit by many trillions of dollars in the coming decade.

Moreover, the House GOP Obamacare replacement plan which Trump says he backs “100 percent” has been roundly criticized by many conservatives as “Obamacare Lite” because it doesn’t move quickly enough to dismantle the most important mandates – especially the requirement that everyone purchase insurance or pay a penalty -- and the biggest tax increases on the wealthy and health care industry.

Related: Ryan Says House GOP is ‘On Track’ to Repeal Obamacare and Pass the ACHA

The GOP proposal would, among other things, replace the Obamacare subsidy system with a different set of refundable tax credits. Those credits would enable individuals earning up to $75,000 a year to qualify for premium subsidies – with older people receiving the largest credits because they typically have much larger heath costs.

It would also gradually phase out the expanded Medicaid program now being used by mostly childless adults in 31 states and the District of Columbia. And it would eventually transform Medicaid from an increasingly costly entitlement program for the poor to a much cheaper system of block grants or per capita payments to the states.

Those changes in the law would mean huge savings for the federal government over time, but it would also mean shifting a hefty portion of their costs to state governments. In the coming years, state governments would have to either dig deep into their coffers to finance an ever-growing share of the cost or tighten eligibility and shrink the rolls.

The CBO report said the largest savings for Republicans would come from reductions in spending for Medicaid and from the elimination of the Obamacare subsidies for non-group health insurance. The largest costs incurred by the new GOP plan would come from repealing dozens of ACA tax increase that have generated huge sums of money for the health insurance program.

Related: With Medicaid Costs Soaring, Republicans Plan Dramatic Eligibility Changes

Those taxes raise $800 billion annually and include an increase in the Hospital Insurance payroll tax rate for high-income taxpayers, a surtax on those taxpayers’ net investment income, and annual fees imposed on health insurers.

There are many factors that would contribute to the deficit reduction under the House GOP plan, according to the CRFB released Monday. First, the new savings are phased in throughout the first decade and grow in impact over time. Also, new spending on tax credits is likely to grow at a slower pace than the Obamacare tax credits if they were still operating.

Finally, many costs of the GOP program, including a Patient and State Stability Fund and a delay in the imposition of the so-called “Cadillac tax” on high-end health insurance policies provided by businesses to their employees are temporary. So those don’t have any budgetary effects beyond the first ten years.

“In other words, savings in the legislation would grow faster than the costs and from a higher starting point,” the report stated.

However, there are serious caveats to all of this. There is no way of predicting how insurance coverage might change during the second decade, the report noted, and “the AHCA’s long-term savings could be significantly lower if various temporary policies were continued.”

For example, if the Cadillac tax were repealed beyond 2025, it could cost the Treasury more than $600 billion over 20 years. That alone would eliminate a huge chunk of deficit reduction.