CBO Report Evaluates Medicaid Caps, ACA Tax Changes to Reduce Federal DeficitImage Banner

CBO Report Evaluates Medicaid Caps, ACA Tax Changes to Reduce Federal Deficit

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CBO Report Evaluates Medicaid Caps, ACA Tax Changes to Reduce Federal Deficit

November 14, 2013

On Wednesday, the Congressional Budget Office issued a report that includes five health care reforms in its list of ways to reduce the deficit. Included in that list are Medicaid block grants, which would cap federal funding for Medicaid, changing the program from a percentage match structure to a fixed, lower dollar amount. States currently contribute approximately forty-three percent of Medicaid money spent, with the federal government picking up the remainder. Over the past two decades, Medicaid costs have steadily risen as states have expanded their Medicaid programs. By capping the amount of the money the federal government contributes to state programs, the CBO report said that significant deficit reduction could be obtained. Critics of block grants and and other capping schemes believe that states would be forced to scale back on their Medicaid programs,by cutting services, reducing number of people covered, or both, because they would not be able to make up the funding gap that would come with the cost shift that the changed structure would impose. The report estimates that Medicaid funding caps could save the federal government from $105 billion to $450 billion over seven years.

The report also noted that reducing the tax preferences for employment-based health insurance would save significant amounts of federal money. If an excise tax were imposed over a certain threshold ($7,970 for individual coverage, $19,910 for family coverage) $240 billion would be saved over eight years. This would increase excise tax revenues as well as generate income and payroll tax revenue. Some employers would be discouraged from offering health insurance to their workers under this scheme, which the CBO estimates would result in half a million people who currently are in employer-based plans to become uninsured. An alternative proposal would be to eliminate the excise tax and instead imposed a limit on health spending accounts and flexible spending accounts that are not included in income and payroll taxes. 

The report also evaluated the potential deficit reduction that would come from converting Medicare to a premium support system, imposing Medicare cost-sharing rules, and restricting Medigap insurance.