Podcast: Health Reform Myths & Realities, Part 2

April 20, 2010

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This podcast is part two in a series of podcasts on myths about health reform and its impact on the federal budget deficit. I’m Shannon Spillane and I’m joined by Jim Horney, Director of Federal Fiscal Policy at the Center.

1.  Jim, some opponents of the new health reform law claim that it is financed with a number of gimmicks and as a result will increase the federal deficit rather than cut it. We’ve looked at each claim of budget gimmickry and found each one misleading or inaccurate. 

Today we’re focused on one particular claim: that the health reform law uses revenues from Social Security and premiums from a new long-term care insurance program to offset the cost of health reform.  Is this a valid attack?

No, it’s not. But first, let me explain what we’re talking about here.

The health reform law has a new excise tax on very high-cost insurance plans.  That will lead some employers to shift some employee compensation from health insurance to wages. Workers will pay Social Security payroll contributions on those additional wages.  This means the government will take in some additional Social Security revenues. 

The legislation also establishes a new, voluntary program of long-term care insurance, called the CLASS Act. Benefit payments from CLASS will be fully financed through the premiums that beneficiaries pay and by interest earnings. That means the government is not subsidizing this long-term insurance program. In its early years, as the program starts up, the government will be collecting more in premiums than it pays in benefits.  

Critics say that the health reform law uses these two kinds of additional revenues to pay for health reform.  But that’s simply not true.

Congressional leaders crafted the health reform bill so that it would be fully paid for WITHOUT relying on these additional Social Security payroll contributions or the CLASS Act premiums.

2.  How can we be sure that’s the case?

The Congressional Budget Office, or CBO, examined the health reform bill and provided a comprehensive estimate of its cost.  It found that even if you don’t count the $29 billion from Social Security contributions over the next ten years or the $70 billion from CLASS Act premiums over that period, health reform still reduces the deficit by $44 billion over the first ten years.  So clearly, these revenues are not being used to pay for health reform.

Thanks for joining us, Jim.

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