The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) together worked on a cost estimate released this week for H.R. 3762, a bill that would repeal many provisions of the Affordable Care Act (ACA). It would preserve the largest spending program in the ACA (the subsidies) and it would repeal some of the most contentious taxes in the law (like the mandates, the medical device taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. , and the Cadillac tax.) Nonetheless, despite cutting taxes and preserving many kinds of spending, it would lower the deficit, according to the CBO’s cost estimate.
This seems puzzling; how could a bill that mostly consists of tax cuts end up reducing the deficit? A closer look at the provisions involved and what they do makes this clear.
The critical insight here mostly centers around the individual mandate. This provision is designed more to influence behavior than to increase revenue. This provision, a penalty assessed on your form 1040 if you fail to acquire health insurance coverage, is mostly designed to encourage people to sign up. Repealing this piece of the ACA—as H.R. 3762 does—has an effect on people’s behavior: namely, the people who are pushed into health coverage by the mandates will be less likely to sign up.
The next step in the line of reasoning is that many kinds of health insurance are subsidized, especially for lower-income Americans (who are more likely to be uninsured.) The increased enrollment, then, has costs to the government in terms of outlays for things like Medicaid and the ACA exchanges.
As the report explains, these increased costs are actually larger than the loss of revenue from the lost mandate penalties:
Under current law, the agencies estimate that the existence of the individual mandate and its associated penalties spurs increased enrollment in federally-subsidized health insurance coverage through Medicaid, the Children’s Health Insurance Program (CHIP), exchanges, and employment-based plans (which are subsidized indirectly because almost no premiums for that coverage are treated as taxable compensation). The estimated savings stemming from lower enrollment in such coverage would exceed the loss in revenues from eliminating penalty payments by uninsured people.
This comparison becomes very easy to see in the numbers provided. Below are the revenue and outlay effects of repealing both mandates.
|
Budgetary Effects of Repeal of Individual and Employer Mandates (Billions of Dollars) |
|||||||||||
|
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2016-2025 |
|
|
Revenues |
-10.1 |
-8.0 |
-8.0 |
-9.8 |
-10.5 |
-10.9 |
-11.9 |
-12.9 |
-13.5 |
-14.1 |
-109.8 |
|
Outlays |
-8.7 |
-17.2 |
-21.0 |
-24.3 |
-26.4 |
-28.3 |
-30.3 |
-31.9 |
-33.7 |
-35.1 |
-256.9 |
The numbers tell the same story that the paragraph above tells: some people respond to the penalties by paying them, but others respond to the penalties by purchasing (often-subsidized) insurance. The subsidies paid to the latter group actually outweigh the revenue the government earns from the penalties. The repeal of the penalties would cost $110 billion in revenue for the government, but the decrease in subsidies paid as a result of repeal would reduce spending by $257 billion, making the provision a big net deficit reducer.
Simply put, the ACA mandates, on net, come at a cost to the federal treasury. H.R. 3762 would reduce the deficit by repealing them.
Share this article