CBO projects federal subsidies for health insurance coverage

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation has released a report which updates the CBO’s baseline 2018 to 2028 projections of the number of noninstitutionalized people under age 65 with health insurance and the federal costs associated with subsidizing this coverage through various programs and tax provisions. It is anticipated that these projections will be as the benchmark for assessing proposed legislation’s effects on the federal subsidies (CBO Report, May 24, 2018).

Background

The CBO report provides projections for noninstitutionalized people under the age of 65 with health insurance and the federal costs associated with each kind of subsidy. Health insurance is subsidized by the federal government through a variety of programs and tax provisions. Medicaid and the Children’s Health Insurance Program accounts for 40 percent of federal spending on subsidized health insurance. Medicare accounts for 10 percent. Additional federal spending on health insurance is for coverage obtained through the marketplaces established by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), as well as subsidies in the form of tax benefits for work-related insurance.

Cost projections

According to the CBO report, about 244 million noninstitutionalized Americans will have health insurance in an average month in 2018, while 29 million will not. By 2028, it projects that 243 million noninstitutionalized Americans will have health insurance while 35 million will be uninsured. In 2018, net federal subsidies for insured people will cost $685 billion, according to the CBO report. By 2028, federal spending will reach $1.2 trillion.

The following represents the 2018 cost projections for federal subsidies for noninstitutionalized people under the age of 65 in the below categories:

  • Work-related coverage: $272 billion
  • Medicaid and CHIP: $296 billion
  • Nongroup coverage and the Basic Health Program: $55 billion
  • Medicare: $82 billion
  • Taxes and Penalties: $21 billion

The projected expenditures over the 2019 to 2028 period under current law:

  • Work-related coverage: $3.7 trillion
  • Medicaid and CHIP: $4 trillion
  • Nongroup coverage and the Basic Health Program: $760 billion
  • Medicare: $1 trillion
  • Taxes and Penalties: $313 billion

Comparing previous projections

A comparison of the CBO’s latest 10-year projection to its comparable 2017 projections indicates the federal government will pay less money on subsidized health insurance and the number of uninsured people will increase. In September 2017, the CBO issued a detailed report comparable to this one. A comparison indicates that the projections have shifted. The CBO lowered its 2018 to 2027 net federal subsidies for health insurance by 5 percent.

Also, the projected number of people with subsidized coverage in 2027 under the ACA is projected to fall by 3 million. The elimination of the penalty associated with the individual mandate is expected to account for roughly half of the projected reduction in work-related coverage over the next decade. It is projected that 2 million fewer people will enroll in work-related coverage in most years after 2018. The CBO has modified its 2017 projections to estimate that 5 million more people will be uninsured in 2027.

10-Year CHIP extension would save $6B

The Congressional Budget Office (CBO) estimated that a 10-year extension of the Children’s Health Insurance Program would cut $6 billion from the deficit, since the program allows the federal government to avoid paying higher costs for alternate insurance obtained through federally-subsidized marketplaces (CBO Report, January 11, 2018).

The CBO and Joint Committee on Taxation had previously estimated that a five-year renewal for CHIP would add $0.8 billion to the deficit, down from its previous estimate of $8.2 billion. The change stems from Congress’s repeal of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) individual mandate. Without CHIP, parents would be more likely to seek federally-subsidized coverage offered through health insurance marketplaces set up by the ACA, and CBO expects that the individual mandate’s repeal will lead to lower enrollment and higher costs in those marketplaces (see Eliminating individual mandate lowers cost of CHIP funding, Health Law Daily, January 8, 2018).

A longer CHIP extension, through S. 1827 the Keep Kids’ Insurance Dependable and Secure Act of 2017, would yield even higher net savings, the CBO said in response to a question by Rep. Frank Pallone Jr. (D-NJ). The KIDS Act would increase the deficit from 2018 to 2020, and decrease the deficit every year thereafter, because the federal matching rate for CHIP would decline from an average of 93 percent in 2019 to 70 percent in 2021 and subsequent years. Under the KIDS Act, the federal costs of insuring children through CHIP would decline as states pick up more of the costs, and would allow the government to avoid paying higher costs for alternative coverage through the marketplaces, Medicaid, and employment-based insurance.

Eliminating individual mandate lowers cost of CHIP funding

The Congressional Budget Office (CBO) lowered its estimate of the deficit impact of legislation that would fund the Children’s Health Insurance Program (CHIP) for five years, finding that CHIP had become less expensive relative to the rising costs of providing alternative coverage through the federally-subsidized health insurance marketplaces (CBO Report, January 5, 2018).

Prior estimate

The CBO and the Joint Committee on Taxation previously reviewed S. 1827, the Keep Kids’ Insurance Dependable and Secure Act of 2017, in October, finding then that it would add $8.2bn to the deficit. The new estimate finds that the bill, which would also change the federal matching rate for the program and state eligibility requirements, would only increase the deficit by $0.8 billion over the next ten years.

Individual mandate

The change stems from Congress’s repeal of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) individual mandate. Without CHIP, parents would have to seek alternative coverage, including federally-subsidized coverage offered through health insurance marketplaces set up by the ACA. Without the individual mandate, the CBO expects lower enrollment and higher costs for the insurance marketplaces, which increases the federal cost of enrolling a child in coverage through the marketplaces. The rising marketplace costs make CHIP a more cost-effective alternative to funding children’s health costs, the CBO found.

Webinar: Delay, Deregulate, Derail — Health Care Roiled by Actions of Trump and Congress

Since January, both President Trump and Republican leaders in Congress have talked about a three-step process for repealing and replacing the Patient Protection and Affordable Care Act (ACA). While the first six months of the Trump administration has seen mixed results, its efforts to reign in or hold back regulations, combined with its delay in filling lower-level agency roles, has impacted regulatory review and issuance of new regulations. So, despite Congress’ inability to pass legislation to change parts of the ACA, there is still plenty for providers to be concerned about.

Join Associate Managing Editor Kathryn Beard, JD, on Wednesday, August 2, for this half-hour live webinar covering attempts by the Trump Administration and Congress to delay, deregulate, and derail significant parts of federal health policy. She will discuss the two “repeal and replace” bills, FDARA, and significant executive and regulatory actions taken by the Trump administration which directly impact ACA provisions.

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