Will Health Care Reform Increase the Deficit and National Debt?

Few debates are more fever-pitched than the one about government spending and the economy. In the past year, a significant amount of this debate has centered on the Patient Protection and Affordable Care Act (PPACA), with many saying that it will lower the federal budget deficit over the long-term, and others contending that it will inflate the deficit and national debt.

A report funded by the Robert Wood Johnson Foundation looks at how the deficit will be affected by PPACA. According to Urban Institute researcher John Holahan, the ultimate effect of reform on the nation’s debt level is uncertain, but policy-makers retain a wide range of tools to contain costs if the Congressional Budget Office (CBO) estimates prove too optimistic. CBO has estimated that health reform will reduce the deficit primarily because cuts in Medicare combined with new revenues will more than offset new spending, and that the deficit reduction effects will increase over time. The authors recognize that CBO projections may have underestimated spending growth, but probably not in any significant way. There is some chance that the cost of Medicaid expansion and subsidies to individuals and families could be higher than expected.