Repealing all insurance coverage provisions of the Affordable Care Act without replacing them would reduce the federal budget deficit by $1.2 trillion between 2017 and 2026, according a new Congressional Budget Office compendium of possible cost-saving moves across the entire U.S. government budget.
Along with the cost-savings, repeal of the ACA would increase the number of uninsured Americans from about 23 million to 51 million, and lead to skimpier benefits in the individual insurance market and more denial of coverage to people with pre-existing medical conditions, the CBO projects.
Eliminating just the ACA's mandate for nearly all Americans to buy health insurance would slash $416 billion from the deficit by sharply reducing the number of people who would receive federally subsidized private insurance or Medicaid coverage. That would hike the number of uninsured from 28 million to 43 million in 2026.
But President-elect Donald Trump and congressional Republican leaders -- who will be hungrily looking for budget cuts to offset their huge planned tax cuts and military spending hikes – can find plenty of other money-saving ideas in the CBO report.
In the healthcare sector, they could save taxpayers a hefty $429 billion by limiting the income- and payroll-tax exclusions for employer-based health benefits. Requiring pharmaceutical manufacturers to pay a minimum rebate on prescription drugs covered by Medicare Part D for low-income beneficiaries would net a nifty $145 billion. Consolidating and reducing federal payments for graduate medical education at teaching hospitals would yield a cool $31.9 billion. Restricting medical malpractice claims would slash the deficit by $61.9 billion.
Outside of healthcare, reducing federal crop insurance subsidies would cut the deficit by $27 billion over a decade. Taxing so-called carried interest received by investment managers as ordinary income would yield $19.9 billion in savings. Raising the tax rates on long-term capital gains and qualified dividends by two percentage points would cut the deficit by $57.1 billion. And imposing a tax on financial transactions, as Democratic presidential candidates Hillary Clinton and Bernie Sanders proposed, would reduce the deficit by a whopping $707.3 billion.
The CBO, working with the Joint Committee on Taxation, estimated that abolishing all of the ACA's coverage provisions -- including its premium subsidies, Medicaid expansion, individual mandate, employer mandate, tax on high-value employer health plans, and insurance market reforms -- would reduce mandatory federal spending by $1.7 billion and federal revenues by $498 million over a decade. That would deliver net savings of $1.2 billion.
That's quite different from the CBO's June 2015 evaluation of the impact of repealing the healthcare law. At that time, the nonpartisan scorekeeping agency projected that repealing the law's spending cuts and tax increases would add $137 billion to the federal deficit over the coming decade, even as almost $1.7 trillion in coverage costs would disappear. It said repeal would reduce the federal budget deficit in the first few years but increase the deficit by steadily rising amounts as time goes on.
The new projection did not include repeal of a number of ACA taxes not related to coverage, including the medical device tax, the health insurance premium tax, and the Medicare payroll tax on high-income people. All those taxes are slated for extinction under Republican repeal plans, likely reducing the net budgetary savings associated with repeal. Nor did it consider the law's large reduction in Medicare payments to providers and health plans. If those cuts are restored, that would significantly diminish budgetary savings.
The largest amount of gross savings from repeal of the law's coverage provisions -- $950 billion – would come from reducing federal spending for Medicaid and the Children's Health Insurance Program, with the next largest amount coming from axing the law's premium and cost-sharing subsidies -- $794 billion.
“On average, out-of-pocket costs in the nongroup market would rise, and the availability of affordable insurance would fall for people who are in poor health or who have low income,” the report said. “In many cases, older people and those in poor health would be denied coverage altogether in the nongroup market.”
The CBO report did not explore how savings from repealing the ACA's coverage provisions could be used to finance an alternative system of subsidies envisioned by some Republicans to replace the current healthcare law – or what the net budgetary impact of a replacement package would be.
Researchers from the Urban Institute reported this week that a Republican repeal bill without a replacement, along the lines of the bill Congress passed in January, would cut federal spending by $109 billion in 2019 alone and boost the number of uninsured from 29.9 million to 58.7 million. That's more than were uninsured prior to the ACA's implementation, because repeal would disrupt the entire individual market and cause an additional 7.3 million to become uninsured.
The increase in the uninsured following repeal, the researchers added, would place large new burdens for uncompensated care on state and local governments and on healthcare providers who have largely driven job creation in the past year.
Republicans seeking to craft replacement coverage following ACA repeal will be seriously hobbled by elimination of the law's revenue sources, said veteran Republican health policy analyst John Goodman in an op-ed piece in Forbes. “If all of Obamacare goes away, including its funding sources, where does the money come from to continue the insurance for the 20 million newly insured under the Affordable Care Act?” he asked.
Correction, Dec. 12, 2016:
Repealing the ACA would reduce the federal budget deficit by $1.2 trillion between 2017 and 2026. An earlier version of this story had an incorrect figure of $1.2 billion.