Costs Less; Covers Fewer People: A New Look at the Health Reform Law

One of the basic facts that often gets lost in the millions of bytes of text that have been written about the Patient Protection and Affordable Care Act is that its most significant provisions do not even go into effect until January 2014. Since the law was enacted, politicians, pundits, professors, actuaries and the general public have weighed in on the likely cost and coverage implications of the law.

The Congressional Budget Office, however, remains the basic authority in determining the cost and federal budget impact of particular pieces of legislation. The CBO also issues regular updates on the status of the federal budget, and how significant pieces of legislation, like the health reform law, impact the budget over time. The CBO declares itself as being nonpartisan; in practice, being nonpartisan usually means that people across the political spectrum can find something in any given CBO report to bolster their case.

For example, the CBO recently issued two reports — one focusing on the impact of the health insurance coverage provisions of the law and the other on the how the law will impact how many people will still get their health insurance through their employer. The CBO’s conclusion — the health reform law will cost slightly less and cover slightly fewer people, compared to the CBO’s analysis a year ago. Also, 3 million to 5 million fewer people will receive their health insurance coverage from their employer than previously estimated.

The CBO estimates that the insurance coverage costs of PPACA will be just under $1.1 trillion from 2012 to 2021. This represents a $50 billion decrease in CBO’s estimate from March 2011. The federal government will expend $1.5 trillion over that period on the expansion of Medicaid and the Children’s Health Insurance Program as well as subsidies for the purchase of health insurance through the new state-based insurance exchanges, as well as tax credits for small employers. This amount will be offset by $400 billion in receipts from penalty payments from individuals who do not purchase health insurance, as well as a new excise tax on high-premium insurance plans.

The report, however, also includes estimates of the cost of health reform through 2022. These estimates show that implementation of the reform law will cost the federal government $1.8 trillion from 2012 to 2022, offset by $510 billion in penalty payments and excise tax revenues. Opponents of the health reform law see a sharp increase in the cost of the law;  the CBO notes that the cost estimate goes up because the new range drops one year when the law is  not in effect (2011) and adds one year when it will be in full effect (2022).

The CBO further noted that the $50 billion decrease in the cost estimate of health reform is primarily due to new legislation enacted in 2011 (reducing the cost by $38 billion) as well the effect of a slower economic recovery.  Overall, the reform law is estimated to reduce the number of nonelderly people without health insurance by 30 million to 33 million in 2016 and subsequent years, leaving 26 million to 27 million uninsured.

The CBO also notes that there is “a tremendous amount of uncertainty about how employers and employees will respond” to the implementation of reform. In its original analysis of the impact of the legislation, the CBO estimated that the number of people obtaining coverage through their employer would be about 3 million lower in 2019 under the legislation than under prior law. Now, the CBO and JCT estimate that, because of the law, about 3 million to 5 million fewer people will obtain coverage through their employer each year from 2019 through 2022 than would have been the case under prior law.

The two groups, however, included four different scenarios about how employers and individuals would react to the implementation of health reform — in the best case scenario, employment-based coverage would increase by 3 million people in 2019. In the worst-case scenario, employment-based coverage would decrease by 20 million people in 2019.