Summary of CBO Analysis of PPACA
This afternoon the Congressional Budget Office released their re-estimate of the health care law in light of the Supreme Court’s ruling, along with a new cost estimate for repealing the legislation. In sum, CBO said that the Supreme Court ruling will:
- Decrease the net cost of the law by $84 billion through 2022;
- Result in about 3-4 million additional individuals remaining uninsured; and
- Raise premiums on the individual market by 2 percent, or about $400 per family – that comes in addition to the $2,100 per family premium increase CBO previously predicted back in 2009.
To be clear, in re-estimating the impact of the law’s Medicaid expansion – which the Court’s ruling made optional – CBO did NOT attempt to determine which states would and would not expand their Medicaid programs. When assessing the outcome of the ruling, CBO concluded that:
- About one-third of the potential newly eligible Medicaid population will reside in states that will fully expand coverage under the law’s parameters (i.e., up to 138 percent of poverty). These individuals will be enrolled in Medicaid, as they would have been prior to the ruling.
- About one-half of the potential newly eligible Medicaid population will reside in states that will partially expand coverage under Medicaid (i.e., more than exists currently, but not up to 138 percent of poverty). CBO assumed that 40 percent will reside in states that expand up to 100 percent of the poverty level, and 10 percent will reside in states that expand Medicaid to some level below 100 percent of poverty. Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while those individuals with incomes under 100 percent of poverty will either be enrolled in Medicaid, if their state has expanded the program to cover them, or will not obtain access to coverage if their state has not expanded Medicaid to cover them (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
- About one-sixth of the potential newly eligible Medicaid population will reside in states that will NOT expand coverage under the Medicaid expansion at all in the next decade. Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while all those individuals with incomes under 100 percent of poverty will not obtain access to coverage (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
- CBO also concluded that “about one-fifth” of those already eligible for Medicaid will no longer enroll in the programs – diminishing the “woodwork effect,” whereby individuals come “out of the woodwork” and discover they have been eligible for Medicaid for some time.
In total, CBO concludes that about 6 million fewer people will be enrolled in Medicaid under the law due to the ruling and its impacts; between 2-3 million of these will receive subsidies on insurance Exchanges in lieu of Medicaid coverage, while between 3-4 million will remain uninsured, thus diminishing the law’s reduction in the number of uninsured Americans.
With respect to the budgetary impacts of these changes, CBO estimates that the federal government will save $6,000 in Medicaid costs for each individual that does not enroll in the Medicaid program. Conversely, CBO estimates each individual who receives an Exchange subsidy instead of joining the Medicaid expansion will cost the federal government a net of $3,000 – that’s the difference between the amount the taxpayers will spend on insurance subsidies ($9,000) and the amount taxpayers would have spent on Medicaid coverage instead ($6,000). On net, CBO believes the Court ruling will reduce Medicaid spending by $289 billion, while increasing spending on Exchange subsidies by $210 billion (with a further $5 billion impact of interactions).
Finally, CBO included the following paragraph on page 15 of its analysis of the Court ruling:
The additional enrollees [i.e., those previously projected to enroll in Medicaid, but who will now receive Exchange subsidies in light of the Court’s ruling] are likely to spend more on health care, on average, than those previously expected to purchase insurance through the exchanges because people with lower income generally have somewhat poorer health. As a result, CBO and JCT now estimate that the premiums for health insurance offered through the exchanges, along with premiums in the individual market, will be 2 percent higher than those estimated in March 2012.
As noted above, this 2 percent increase – or nearly $400 for a family, given an average premium of $19,200 per year – comes in addition to the $2,100 per family premium increase CBO previously predicted when the law first passed. Recall that candidate Obama repeatedly promised premiums would go down by $2,500. This development takes him even further away from keeping that promise.