The $90 Billion in Health Savings That We’ve Already Enacted

Update, December 14:  we’ve added a new paragraph to the end of this post.

As budget negotiators consider cutting health care entitlement programs like Medicare and Medicaid to help reduce deficits, they should keep in mind that policymakers have enacted cuts in the past two years that will save about $90 billion from health care entitlements over the next decade.

• In December 2010, Congress amended health reform to require taxpayers whose income qualifies them for a premium tax credit toward the purchase of private coverage, but whose income then rises unexpectedly during the year, to repay more of the credit.  This provision will save roughly $27 billion between 2013 and 2022.  (We have extrapolated the original CBO cost estimate, which extended only through 2020.)

• In April 2011, Congress further tightened the rules for repaying the premium tax credits, saving an additional $30 billion.

• In November 2011, Congress added Social Security benefits to the kinds of income that count in determining someone’s eligibility for Medicaid and premium credits.  This change will save about $16 billion.

• In February 2012, Congress enacted several Medicare, Medicaid and other health cuts — in (among other things) clinical laboratory services, preventive health activities, and reimbursements for charges that providers can’t collect from patients — that together will save $18 billion.

The first and last of these provisions, accounting for $45 billion in savings, paid for preventing scheduled cuts in payments to physicians through Medicare’s “sustainable growth rate” formula.  Since virtually all budget analysts assume that policymakers will continue to prevent these cuts but will not offset the cost, these savings represent a net reduction in the deficit relative to a current-policy baseline.  The other two provisions offset the cost of tax cuts in the same legislation, so the legislation as a whole did not reduce the deficit.

In addition to these legislated cuts, the Supreme Court’s June decision on health reform has also reduced projected health spending. The court’s decision, as we have explained, essentially means that states can decide whether to expand their Medicaid programs to cover adults with incomes up to 138 percent of the federal poverty level. Not all states are expected to implement the expansion right away. As a result, CBO estimates that the court’s decision will reduce the deficit by $84 billion over the next ten years, though it will also leave more people without health insurance.