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.

CBO, JCT share methods for analyzing legislative proposals impacting health insurance coverage

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) revealed in a recent report how they jointly analyze proposed legislation that would impact health insurance coverage for individuals younger than age 65, detailing how they develop analytic strategies, model a proposal’s effect, and finalize their analysis (CBO Report, February 2018).

Analytic strategy development

First, the CBO and JCT put together an analytic strategy. The agencies formally develop their strategy once the proposed legislation’s specifications become available, an official request for analysis has been made, and the CBO and JCT arrange the time to commence the analysis. However, the agencies also often work informally with Congressional staff during development of the proposal. The agencies begin by reviewing the policy specifications. The CBO and JCT consider how the proposed legislation would impact existing law and how the proposed legislation is different from earlier proposal drafts. The agencies work to verify that the Congressional staff’s intent is reflected in the language and then estimate the legislative effect by, namely, identifying how the proposal could affect health insurance coverage and the federal budget.

The CBO and JCT focus on the policy changes most likely to impact health insurance coverage or cost, ranging from the straight-forward to the more complex. Another key aspect the agencies consider is timing and what additional “administrative infrastructure” is necessary to bring about the changes of the proposed legislation—and how long it would take to do so. The timing element includes estimates of how other stakeholders (state governments, insurers, employers, etc.) would respond and how long it would take for them to implement the proposed changes. To help with their estimates, the agencies rely on past cases of legislative reform programs. Further, the agencies seek input from outside experts and existing evidence while maintaining the required confidentiality of a proposal.

Proposal effect modeling

Second, the CBO and JCT undertake modelling the impact of the proposed legislation. Primarily, the agencies rely on CBO’s health insurance simulation model (HISIM), Medicaid enrollment and cost models, and JCT’s individual tax model. These models use data on health insurance coverage information for everyone younger than 65, Medicaid enrollment and expenditures, and detailed tax return information. The agencies also draw estimates based on information HISIM cannot project, namely, the behavior of states, employers, and insurers. These initial projections are incorporated as inputs into HISIM (state, employer, and individual enrollee behavior) or assessed outside HISIM (insurer behavior). CBO and JCT also use HISIM to estimate stakeholder responses to new coverage options. Medicaid enrollment and cost projections use HISIM estimates in addition to a more detailed Medicaid model and other methods. JCT usually provides estimates of proposed tax liability changes using its individual tax model.

Review

Finally, both the CBO and JCT engage in rigorous review of their respective analysis results in order to ensure objectivity and proper analysis. Specifically, they examine results of one or more years out of the 10-year projection period to ensure that the analysis is being computed as intended and compare results against previous analyses. The agencies also inspect for programming errors or unexplained results. The CBO and JCT consider changes to the results if there were different critical inputs. The agencies prepare a formal written estimate and explanation thereof and, before releasing it to Congress and the public, agency staff carefully review the report.

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.

Dem leaders push for quick Graham-Cassidy CBO assessment; hearing scheduled

Democrats in both the House and Senate reacted quickly to the Graham-Cassidy legislation in requesting a full assessment from the Congressional Budget Office (CBO). The office stated that it is working on a preliminary assessment for the week of September 25, 2017, as early as possible. However, the CBO warned that point estimates on several matters will be unavailable for at least a number of weeks.

Graham-Cassidy legislation

Offered as an amendment to the American Health Care Act (AHCA) (H.R. 1628), the proposal would give more control to states over meeting their residents’ health care needs. The legislation would repeal the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and fund a block grant program through the Children’s Health Insurance Program (CHIP) instead (see Sanders’ Medicare-for-all, Graham-Cassidy’s block grant legislation introduced in Senate, September 14, 2017).

Finance hearing

The Senate Finance Committee will conduct a hearing on the Graham-Cassidy amendment on September 25, 2017. Committee Chair Orrin Hatch (R-Utah) announced the hearing, stating that it would allow members on both sides of the issue to better understand policy. In light of the Finance Committee’s hearing announcement, Sen. Ron Johnson (R-Wis), chair of the Senate Homeland Security and Governmental Affairs Committee, has chosen to cancel his committee hearing.

CBO request and response

According to Rep. Nancy Pelosi (D-Calif), “Republicans are reportedly hoping to rush to a vote with only a scant budget assessment.” The letter to the CBO requested information on loss of coverage, premium and out-of-pocket cost increases, effect on those with pre-existing conditions, Medicaid cuts, marketplace stability, and state reform timelines. The CBO will be unable to provide estimates on the effects on the deficit, coverage, or costs in its preliminary assessment.

AMA chimes in 

Ahead of a CBO report, the American Medical Association (AMA) believes that the bill would destabilize markets and cause millions to lose coverage. The association reached out to Senate Majority Leader Mitch McConnell (R-Ky) and Minority Leader Chuck Schumer (D-NY) to oppose the amendment and all legislation that would jeopardize coverage. The AMA holds the position that any health reform proposals should ensure that those currently insured are able to maintain their coverage, and expressed its concerned that the conversion of the Medicaid program would limit federal support for needy patients.