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“Indexing in the Affordable Care Act: The Impact on the Federal Budget

Proponents of the Affordable Care Act have pointed to the Congressional Budget Office’s cost estimates to support their argument that the law will result in lower federal budget deficits in the future. Much less is said about the reasons for this forecast. This paper explains that the primary reason for the projected deficit reduction is the law’s heavy reliance on indexing important provisions in order to restrain spending and increase revenue. The key provisions are a “productivity adjustment factor” that results in across-the-board cuts to hospitals and other facilities in perpetuity; frozen income thresholds for new taxes that supposedly apply only to higher-income households; thresholds for a new “Cadillac” tax on high-cost insurance that rise more slowly than healthcare costs; and indexing rules for premium credits that will cause lower-income households to pay ever higher percentages of their income in premiums. As more taxpayers and beneficiaries come to understand the full implications of these provisions, pressure will build to make significant adjustments to them. The result could be much higher spending and lower revenue than originally forecast by the Congressional Budget Office.