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ACA cost estimate cut by $104B over next decade


By Paul Demko
Posted: April 14, 2014 - 4:00 pm ET
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Obamacare is expected to cost $104 billion less than previously anticipated for the period 2015-24, according to a new analysis (PDF) by the Congressional Budget Office. That's in part because premiums on plans purchased through the state and federal exchanges are expected to be lower than prior estimates. That spells lower federal subsidies for individual who make up to 400% of the federal poverty threshold.

The lower-than-expected premiums can be attributed to narrower networks and more care restrictions on exchange plans than on many employer-offered plans, the CBO said.

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The Patient Protection and Affordable Care Act is expected to cost $36 billion in 2014—$5 billion less than previously anticipated. Over the course of the next decade, the law is expected to cost $1.4 trillion, the CBO said.

Those costs stem almost entirely from expanding Medicaid to individuals who make up to 138% of the federal poverty threshold in states that opt to participate and providing subsidies to individuals in order to purchase health plans. Together those assistance programs are projected to cost $1.8 trillion through 2024.

However, those costs will be partially offset by penalty payments. Individuals and businesses that fail to comply with the terms of the ACA are expected to pay the federal government $456 billion in the next 10 years.

The CBO cautioned that the study only looks at the insurance provisions of the law. The nonpartisan agency previously estimated (PDF) that repealing the ACA would cost the federal government $109 billion over the course of a decade.

An average of 6 million individuals will receive health insurance coverage through a plan purchased on the state or federal exchanges at any given time during 2014, according to the CBO analysis. The Obama administration announced last week that 7.5 million individuals had signed up for coverage through the exchanges. But some of those individuals will fail to make their premium payments and therefore never be covered. In addition, the number of individuals covered through exchange plans is expected to fluctuate from month to month.

The average premium for a silver plan purchased on the exchange in 2014, which is designed to cover 70% of healthcare costs, was $3,800. The agency expects that cost to increase to $3,900 in 2015, $4,400 in 2016 and $6,900 by 2024. But the projected average premium for 2016 is actually 15% lower than the CBO had previously projected.

The federal agency pointed out that plans offered through the exchanges typically have narrower provider networks and more restrictions on care than plans offered by employers. The agency expects that trend to continue in future years as a means of controlling the cost of premiums and that job-based plans will mimic those changes. The new CBO study also reduced the number of individuals expected to get coverage through their jobs by about 1 million annually.

However, the CBO report cautions that premiums will ultimately be dependent on how insurers priced the marketplace in 2014 and whether the customer base ultimately meets their expectations about cost. “Anecdotal reports to date have been mixed and provide no clear evidence that insurers have been substantially surprised by the health status of their enrollees,” the report notes.

The percentage of nonelderly adults with health insurance coverage is expected to hit 84% in 2014, up from 80% previously. That rate's expected to rise to 89% in 2016 before leveling off. In addition, the CBO projects that 12 million more individuals will have coverage in 2014 because of the ACA. That number will increase to 26 million by 2017.

That anticipates that 25 million individuals will have coverage through the state and federal exchanges by 2018. An additional 13 million are anticipated to be enrolled in Medicaid or the Children's Health Insurance Program. However, those numbers will be partially offset by fewer individuals receiving coverage through their jobs.

Despite those increases, the CBO projects that 31 million nonelderly adults will still be uninsured in 2024. About a third of those individuals will be immigrants living in the U.S. illegally who aren't eligible for assistance under the ACA. Nearly half of the uninsured will be individuals who choose to forgo insurance coverage.

Roughly three-quarters of the individuals who purchased plans on the exchanges in 2014 received a subsidy, according to the CBO. The average subsidy is expected to be $4,410. That's expected to decline 3.6% in 2015, to $4,250, but then rise steadily throughout the decade, to $7,170 in 2024.

The CBO anticipates that the risk corridor program—which is designed to minimize risk to insurers during the initial three years of exchange operations by providing payments to those with higher costs than anticipated—will be budget-neutral. Previously the agency had anticipated that the federal government would actually receive $8 billion in revenue through the program.

Follow Paul Demko on Twitter: @MHpdemko


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