The Affordable Care Act and the Deficit

Cross-posted from the OMB blog.

CBO Director Doug Elmendorf recently gave a presentation on health costs and the fiscal outlook.  Doug concludes that the federal budget remains on an unsustainable course even after enactment of the Affordable Care Act, and I wholly agree with him. 
 
There should be no ambiguity about whether we face unsustainably large deficits over the medium- and long-term.  We do.  That is why the Administration’s Budget proposes significant additional deficit reduction and that is also why the President has formed a bi-partisan Fiscal Commission charged with recommending measures to achieve medium term fiscal sustainability and to meaningfully improve the long-run fiscal outlook.

The fact that more action must be taken on the deficit even after enactment of the Affordable Care Act, however, is a distinct question from whether the health legislation helps to improve our fiscal course — which it does. 

In particular, CBO estimates that the Act will reduce the deficit by more than $100 billion over the next ten years and more than $1 trillion in the ten years after that.  That’s more deficit reduction than has been enacted in over a decade.
 
Perhaps more importantly, the Act has the potential to fundamentally transform our health system into one that delivers better care at lower cost.  This potential isn’t fully captured in CBO’s numbers, and that’s appropriate.  CBO produces its estimates based on what has happened in the past, and we have never enacted such a fundamental transformation. 
 
The new law incorporates the most promising ideas from economists and leaders from  across the political spectrum to control health care costs.  As I have written before, this includes the vast majority of the options CBO itself suggested for reducing long-term health care cost growth.  And we now have a variety of new institutions that will be devoted to guiding policy toward higher-quality and lower-cost outcomes.
 
The bottom line is that we are on a long journey toward fiscal sustainability — but that should not diminish the importance and potential of the Affordable Care Act.

Peter R. Orszag is the Director of the Office of Management and Budget

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