Does The Affordable Care Act Increase The Deficit?

by Stuart Shapiro

Much ink has been spilled with arguments about whether the Affordable Care Act increases or decreases the deficit.  Some of this ink has been spilled by prominent economists on each side.  These types of debates make the public wonder if any expert can be trusted.  Jeff Brown explains why such a debate exists and how each side makes different (but defensible) assumptions that lead to their conclusions.

Relative to a world where Medicare expenditures are brought into balance with revenues within the next few years (which does appear to be required under the literal reading of current law), ACA increases Medicare expenditure and the deficit.  This is the Blahous view.

Relative to a world in which we project current practice forward, ACA reduces Medicare expenditure and the deficit.  This is the Krugman and Orszag view.

Brown goes on to say:

Most ordinary people probably think that what we should be doing is making some cuts, but not cut so deeply as to eliminate the entire Medicare shortfall.  If so, the effect on the deficit is better than if we did nothing, but worse than if we solved the problem.

So most people probably think the “truth” (whatever that means in this context) lies somewhere in the middle.

Now if only most politicians could acknowledge the ambiguity that comes with good analysis like this.  But nuanced conclusions are not the friend of any politician.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.