CBO: Benefits of Defunding ObamaCare Unclear

By Matt Cover | June 3, 2011 | 8:23 AM EDT

(CNSNews.com) – The Congressional Budget Office said the budgetary benefits of permanently defunding the Democrats’ health care law are difficult to discern and could end up making budget deficits worse.

In a May 26 analysis produced for Rep. Henry Waxman (D-Calif.), the CBO – in conjunction with the Joint Committee on Taxation (JCT) – said it is impossible to estimate the budgetary impact of defunding ObamaCare because there is no way to know how much discretionary spending ultimately would be stopped.

“CBO and JCT do not have sufficient basis to provide a comprehensive estimate of the budgetary effects of legislation that would prohibit the use of funding to implement the 2010 health laws, yet would not repeal any provisions of that law,” the report read.

Defunding a law means that Congress would prohibit the administration from using any federal funds to carry out the law’s provisions. However, determining how such a prohibition would affect federal finances is far from simple.

Essentially, the fiscal impact of defunding the health care law would depend on several factors, including how Congress writes the defunding legislation, how the administration interprets the law, and how the public responds to the news.

If Congress is not specific in spelling out precisely what the administration may and may not use federal funds for, some parts of the law may still continue to be carried out.

“For some provisions of law, it is difficult to delineate between activities that HHS would be able to undertake and those that would be prohibited,” CBO said.

“The funding for Medicare benefits and matching payments to states for Medicaid is mandatory, so the funds to make those payments would be available; the question is whether a ban on using appropriated funds would block or inhibit the process of determining and making those payments.”

In other words, because the law changed who was eligible for Medicaid benefits and instituted changes in how Medicare pays hospitals, it is unclear whether defunding the law would prevent those payments from being disbursed, since they are authorized under different legislation.

If it was determined that defunding ObamaCare prevented the administration from instituting the new rules, federal spending would go up because the payment reductions could not be implemented.

“Freezing payment rates for physicians’ services would increase spending relative to current law because those rates are scheduled to drop in 2012,” CBO wrote.

However, defunding probably would save money in other areas, particularly in the Medicare Advantage and Part D programs. Because ObamaCare modifies both programs, increasing the Part D drug benefit and cutting $500 billion from Medicare Advantage, defunding the law would decrease federal spending.

Because both plans require the federal government to periodically negotiate contracts with insurance plans and drug makers, defunding ObamaCare would prohibit the government from negotiating those contracts under the new rules, thereby stopping both programs altogether and reducing spending.

The effects on other parts of the law also are uncertain. Some provisions such as the individual mandate and its associated penalty depend on how the public reacts to the law being defunded. If people comply voluntarily, then spending will most likely go down because the government will be prohibited from dispersing the insurance subsidies called for under the law.

However, if people decide not to comply with the individual mandate, deficits may go up slightly because the IRS would be prohibited from collecting the penalties associated with noncompliance.

“If federal agencies could not use appropriated funds to administer those provisions, CBO and JCT expect that qualified health plans and subsidies for qualifying individuals would not be readily accessible and the mandate for residents to obtain health insurance could not be enforced.

“[S]ome individuals and families would probably comply with the requirement to obtain health insurance who would not have obtained it in the absence of the mandate,” CBO said. “Therefore, a prohibition on the use of appropriated funding would substantially reduce the amount spent by the government on subsidies for cost sharing and premiums,” approximately $700 billion over ten years. 

Defunding the law could also lead to reduced revenues, which may or may not increase budget deficits. ObamaCare contained taxes on high-cost insurance plans as well as a plethora of new taxes on such things as medical devices and health savings accounts.

How much defunding would reduce revenue is not knowable because there is no way to estimate whether people would comply with the law if the IRS was prevented from enforcing it.

“A variety of factors could affect the extent of this reduction. The prohibition would not amend the Internal Revenue Code or otherwise change the laws affecting taxation; it would only inhibit the ability of the IRS to administer the law.”