Hospital CFO Congressional Budget Office Analysis of the Affordable Care Act

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Congressional Budget Office Analysis of the Affordable Care Act

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Hospital CFO:
August, 2012

Congressional Budget Office Analysis of the Affordable Care Act

By: Dennis Stewart, Streamline Savings _____________________________________________________________________________________
The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have prepared two analyses that take into account the Supreme Court’s recent decision ( that essentially made the expansion of the Medicaid program under the Affordable Care Act a state option):


Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision. CBO and JCT’s previous estimate of the effects on insurance coverage of the ACA, before the Court’s decision, were reflected in the projections contained in CBO’s Updated Budget Projections: Fiscal Years 2012 to 2022 (March 2012) and further described in Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act (March 2012).

What Is the Net Budgetary Impact of the Coverage Provisions Taking Into Account the Supreme Court’s Decision?
CBO and JCT now estimate that the insurance coverage provisions of the ACA will have a net cost of $1,168 billion over the 2012–2022 period—compared with $1,252 billion projected in March 2012 for that 11-year period—for a net reduction of $84 billion. (Those figures do not include the budgetary impact of other provisions of the ACA, which in the aggregate reduce budget deficits.) The projected net savings to the federal government resulting from the Supreme Court’s decision arise because the reductions in spending from lower Medicaid enrollment are expected to more than offset the increase in costs from greater participation in the newly established exchanges.

How Will States Respond to the Supreme Court’s Decision Regarding the Medicaid Expansion?
The Supreme Court’s decision has the effect of allowing states to choose whether or not to expand eligibility for coverage under their Medicaid program pursuant to the ACA. Under that law as enacted but prior to the Court’s ruling, the Medicaid expansion appeared to be mandatory for states that wanted to continue receiving federal matching funds for any part of their Medicaid program. Hence, CBO and JCT’s previous estimates reflected the expectation that every state would expand eligibility for coverage under its Medicaid program as specified in the ACA. As a result of the Court’s decision, CBO and JCT now anticipate that some states will not expand their programs at all or will not expand coverage to the full extent authorized by the ACA. CBO and JCT also expect that some states will eventually undertake expansions but will not do so by 2014 as specified in the ACA.

How Does Insurance Coverage Change After the Supreme Court’s Decision?
CBO and JCT now estimate that fewer people will be covered by the Medicaid program, more people will obtain health insurance through the newly established exchanges, and more people will be uninsured. The magnitude of those changes varies from year to year. In 2022, for example, Medicaid and the Children’s Health Insurance Program (CHIP) are expected to cover about 6 million fewer people than previously estimated, about 3 million more people will be enrolled in exchanges, and about 3 million more people will be uninsured. Although the estimates discussed here are dominated by the movements of people losing eligibility for Medicaid, other smaller shifts in coverage are expected to occur as well. (The changes in coverage reflect the net effect of all estimated changes stemming from the Court’s decision, not just the movements of people who lose eligibility for Medicaid. For example, relative to prior estimates, not all of the increases in enrollment in exchanges and in the uninsured are among people who would have been newly eligible for Medicaid.)

Why are the Projected Medicaid and CHIP Savings Stemming from the Supreme Court’s Decision Greater than the Projected Additional Costs of Subsidies Provided through the Exchanges?
Federal spending over the 2012–2022 period for Medicaid and CHIP is now projected to be $289 billion less than previously expected, whereas the estimated costs of tax credits and other subsidies for the purchase of health insurance through the exchanges (and related spending) have risen by $210 billion. Small changes in other components of the budget estimates account for the remaining $5 billion of the difference. The key factors leading to that result are as follows:


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Only a portion of the people who will not be eligible for Medicaid as a result of the Court’s decision will be eligible for subsidies through the exchanges. According to CBO and JCT’s estimates, roughly two-thirds of the people previously estimated to become eligible for Medicaid as a result of the ACA will have income too low to qualify for exchange subsidies, and roughly one-third will have income high enough to be eligible for exchange subsidies. In addition, those who become eligible for subsidies will have to pay a portion of the exchange premium themselves, which will affect their decisions about whether to enroll in the exchanges. For the average person who does not enroll in Medicaid as a result of the Court’s decision and becomes uninsured, federal spending will decline by roughly an estimated $6,000 in 2022. For the average person who does not enroll in Medicaid as a result of the Court’s decision and enrolls in an exchange instead, estimated federal spending will rise by roughly $3,000 in 2022— the difference between estimated additional exchange subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000. With about 6 million fewer people being covered by Medicaid but only about 3 million more people receiving subsidies through the exchanges and about 3 million more people being uninsured, and because the average savings for each person who becomes uninsured are greater than the average additional costs for each person who receives exchange subsidies, the

projected decrease in total federal spending on Medicaid is larger than the anticipated increase in total exchange subsidies. Letter to the Honorable John Boehner providing an estimate for H.R. 6079, the Repeal of Obamacare Act, as passed by the House of Representatives on July 11, 2012.

CBO and the staff of the Joint Committee on Taxation (JCT) have estimated the direct spending and revenue effects of H.R. 6079, the Repeal of Obamacare Act, as passed by the House of Representatives on July 11, 2012. H.R. 6079 would repeal the Affordable Care Act (ACA), with the exception of one subsection that has no budgetary effect. This estimate reflects the spending and revenue projections in CBO’s March 2012 baseline as adjusted to take into account the effects of the recent Supreme Court decision regarding the ACA. For various reasons discussed in the report, the estimated budgetary effects of repealing the ACA by enacting H.R. 6079 are close to, but not equivalent to, an estimate of the budgetary effects of the ACA with the signs reversed.

What Is the Impact of Repealing the ACA on the Federal Budget?
Assuming that H.R. 6079 is enacted near the beginning of fiscal year 2013, CBO and JCT estimate that, on balance, the direct spending and revenue effects of enacting that legislation would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period. Specifically, we estimate that H.R. 6079 would reduce direct spending by $890 billion and reduce revenues by $1 trillion between 2013 and 2022, thus adding $109 billion to federal budget deficits over that period.

What Major Components Result in the Net Increase in Deficits?
Deficits would be increased under H.R. 6079 because the net savings from eliminating the insurance coverage provisions would be more than offset by the combination of other spending increases and revenue reductions:




The ACA contains a set of provisions designed to expand health insurance coverage, which, on net, are projected to cost the government money. The costs of those coverage expansions— which include the cost of the subsidies to be provided through the exchanges, increased outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for certain small employers—will be partially offset by penalty payments from employers and uninsured individuals, revenues from the excise tax on high-premium insurance plans, and net savings from other coverage-related effects. By repealing those coverage provisions of the ACA, over the 2013–2022 period, H.R. 6079 would yield gross savings of an estimated $1,677 billion and net savings (after accounting for the offsets just mentioned) of $1,171 billion. The ACA also includes a number of other provisions related to health care that are estimated to reduce net federal outlays (primarily for Medicare). By repealing those provisions, H.R. 6079 would increase other direct spending in the next decade by an estimated $711 billion.



The ACA includes a number of provisions that are estimated to increase federal revenues (apart from the effect of provisions related to insurance coverage), mostly by increasing the Hospital Insurance (HI) payroll tax and extending it to net investment income for high- income taxpayers, and imposing fees or excise taxes on certain manufacturers and insurers. Repealing those provisions would reduce revenues by an estimated $569 billion over the 2013–2022 period.

What Would be the Effect of Repealing the ACA on Discretionary Spending?
In addition to those effects on direct spending and revenues, by CBO’s estimates, repeal of the ACA would reduce the need for appropriations to the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Repealing the ACA would also reduce the need for appropriations to the Department of Health and Human Services by between $5 billion and $10 billion over 10 years, CBO estimates. Such savings might be reflected in reductions in total discretionary spending, or they might free up room for additional spending for other purposes under the caps on discretionary appropriations that were established by the Budget Control Act of 2011. H.R. 6079 would also repeal a number of authorizations for appropriations, which, if left in place, might or might not result in additional appropriations.

Why Are These Estimates Uncertain?
Projections of the budgetary impact of H.R. 6079 are quite uncertain because they are based, in large part, on projections of the effects of the ACA, which are themselves highly uncertain. Assessing the effects of making broad changes in the nation’s health care and health insurance systems requires estimates of a broad array of technical, behavioral, and economic factors. Separating the incremental effects of the provisions in the ACA that affect spending for ongoing programs and revenue streams becomes more uncertain as the time since enactment grows. The recent Supreme Court decision that essentially made the expansion of the Medicaid program a state option has also increased the uncertainty of the estimates. However, CBO and JCT, in consultation with outside experts, have devoted a great deal of care and effort to the analysis of health care legislation in the past few years, and the agencies have strived to develop estimates that are in the middle of the distribution of possible outcomes. More information, and the complete article can be found at: www.cbo.gov.....

Stay Tuned, More to come……….

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