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.

Medicaid and CHIP are catching uncovered kids, the ACA helps

Due to high rates of Medicaid and Children’s Health Insurance Program (CHIP) coverage for young children, only 3.3 percent of children ages three and younger were uninsured in 2016. Coverage of both young children (age three and younger) and their parents increased under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) in 2014 and 2015—a trend that continued in 2016. According to an Urban Institute report, young children and their families continued to rely on Medicaid and CHIP in 2016, with 48.5 percent of young children covered by Medicaid or CHIP. In comparison, only 42 percent of older children were covered by the programs.

Trends. Nearly half of young children and one-fifth of the parents of young children were covered by Medicaid and CHIP in 2015 as well. The high incidence of Medicaid and CHIP coverage is partly due to higher incidence of family characteristics among parents of younger children, including lower incomes, younger parents, and mixed immigration status.

Variance. Despite high overall levels of coverage, the prevalence of health insurance coverage for young children and their families continued to vary across state lines. Uninsurance rates were below 2 percent in 12 states but above 8 percent in three states—Alaska, Wyoming, and North Dakota. Additionally, the expansion of state Medicaid programs under the ACA continues to be a significant source of variation in state uninsurance levels for the parents of young children. For example, an estimated 8.7 percent of parents of young children in expansion states were uninsured in 2016, whereas 18 percent of parents of young children were uninsured in nonexpansion states.

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.

Policies to strengthen nongroup insurance markets could fix ACA problems

Enrollment and stability in the nongroup insurance market continues to be threatened by the uncertainty of support for the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Faced with the concerns in this environment, the Robert Wood Johnson Foundation and Urban Institute issued a report, Stabilizing and Strengthening Nongroup Markets, expressing the opinion that “[t]argeted policies could fix the ACA’s problems without sacrificing its gains in coverage, affordability, and access to care.” The report identifies policies that would stabilize the nongroup insurance markets, encourage insurer participation, improve affordability, and rein in premium growth. Some policies would be implemented immediately and others would be implemented in the long term; however, solving the problems will take significant political action.

“Strategies that increase the buying power of enrollees and increase enrollment would make participation more attractive to insurers.” To strengthen ACA marketplaces, the report suggested that policymakers learn from the Medicare Advantage and Medicare Part D markets that successfully compete with the traditional Medicare program.

The current climate

The report pointed out that neither Congress nor the Trump Administration has committed to paying cost-sharing reductions, and the administration signaled it does not intend to enforce the individual mandate penalties. Open enrollment periods have been shortened and federal outreach and enrollment funds will be cut 40 percent in the Navigator program, while the ACA advertising effort will be cut 90 percent. In addition, HHS will limit access to healthcare.gov every week during the 2018 open enrollment period. Such actions will reduce coverage.

Short-term commitments

According to the report, the federal government must commit to (1) reimbursing insurers on an ongoing basis for cost-sharing reductions; (2) enforcing the individual mandate penalties; (3) increasing funding for outreach and enrollment assistance; and (4) permanently reinstating a government-funded reinsurance for nongroup markets.

Long-term commitments

Long-term recommendations addressed in the report include strengthening marketplaces, expanding coverage, reducing premiums and cost-sharing requirements, and encouraging the broadest range of insurers to participate. In addition, the federal government should permit states to expand Medicaid, eliminate non-ACA-compliant nongroup insurance products, and reverse current administrative decisions that hinder enrollment. The report noted that the lack of insurer competition is associated with higher benchmark premiums because it eliminates insurer negotiating leverage.

The report suggests that improving affordability would increase coverage, reduce the number of people uninsured, and bring more healthy enrollees into the insurance pool, lowering average premiums. Other long term policy recommendations include providing additional financial assistance to lower premiums and cost-sharing requirements for nongroup coverage, attaching premium tax credits to gold rather than silver plans lowering out-of-pocket costs for all enrollees receiving tax credits, and increasing cost-sharing subsidies for people with lower incomes.

Additional policies

To strengthen the nongroup insurance market, the report described three additional policies:

1. Benchmark premiums. Changing the way benchmark premiums are calculated affects the size of nongroup premium tax credits allowing people to choose from more plans without additional premium contributions.
2. Capping payment rates. Payment rates charged to nongroup insurers by health care providers could be capped, making it easier for insurers to enter new marketplaces and counteracting provider monopolies.
3. Standardize insurance options sold in the nongroup market. Standardizing the insurance options sold in the nongroup market could reduce the complexity of the enrollment process, improving comparability and facilitating price competition.

According to the report, “nongroup insurance markets must become larger, less expensive for consumers in both premiums and out-of-pocket costs, and less financially risky for insurers.”