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Mercatus analysts: Indexing could blow up PPACA

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The Patient Protection and Affordable Care Act of 2010 (PPACA) could turn out to be much more expensive than it looks in official federal budget analyses because some of the automatic indexing provisions in the law could turn out to be unrealistic.

Moves to put off implementation of mechanisms that were supposed make PPACA a deficit-reducing law could cause the law to increase the deficit slightly starting around 2020 and could lead it to increase the deficit by a noticeable amount starting around 2031, James Capretta and Joseph Antos argue in a commentary distributed by the Mercatus Center, a think tank affiliated with analysts who have expressed skepticism about the effects of PPACA rules and programs.

See also: CBO: PPACA bill may lead to 55% rise in uninsured count

The analysts say that the law could increase the federal budget deficit by about 0.2 percent of Gross Domestic Product (GDP) in 2031, and that the impact could increase to 1.2 percent of GDP by 2039.

The analysts look at four PPACA mechanisms that are supposed to decrease government payments or increase tax revenue automatically:

  • A “productivity adjustment factor” mechanism that’s intended to cut reimbursement rates for hospitals, nursing homes and home health agencies based on economy-wide improvements in productivity. Medicare has already imposed a total of 0.7 percent in reductions and is slated to begin reducing reimbursement rates by 0.75 percent per year starting in 2017.

  • A new 0.9 percent add-on to the Medicare hospital insurance payroll tax and a 3.8 percent tax on unearned income for individuals with annual income over $200,000 and families with annual income over $250,000. The provisions are on track to apply to many more people over time because the thresholds are not adjusted for inflation.

  • The excise tax on high-cost “Cadillac” health benefits plans. The tax is intended to apply to coverage that costs $10,200 or more and family coverage that costs $27,500 or more starting in 2018. PPACA indexes the cost threshold by the Consumer Price Index (CPI) plus 1 percentage point in 2019, and then by the CPI in 2020 and later years. Because health premiums typically increase faster than the CPI, the result could be that the share of employers, and employees, affected by the tax will grow over time, the analysts say.

  • Limits on access to and the value of the PPACA premium tax credit subsidies that consumers can now use to pay for PPACA exchange plans.

In the past, Congress has had trouble exercising the self-discipline to let similar types of provisions take effect, Capretta and Antos write.

They say the new PPACA Medicare provider reimbursement adjustment mechanism resembles the Medicare physician Sustainable Growth Rate (SGR) reimbursement limit system. Congress never let the SGR reimbursement cuts take effect.

See also: Congress votes to give doctors a raise in U.S. Medicare payments

Medicare’s own actuaries now prepare forecasts based on the assumption that actual productivity adjustment savings will be much lower than what the official projections show, the analysts write.

Similarly, Congress may also end up killing, delaying or reducing the scope of the Cadillac plan tax and the new high-earner taxes, and it may find ways to ease the effects of the premium tax credit eligibility and subsidy value changes, the analysts say.

“A political movement has already sprung up to either delay the [Cadillac plan tax] further or scuttle it altogether,” the analysts say. “Given the level of political opposition that is already evident, it is likely that pressure will build further to adjust it as it begins to pinch just about every employer-based health plan offered in the country.”

See also: Hillary Clinton backs PPACA Cadillac plan tax repeal