Spending on the insurance coverage provisions of the Affordable Care Act is projected to be $142 billion lower than the figure arrived at six weeks ago, according to the Congressional Budget Office. That's primarily due to reduced enrollment projected for exchange plans and Medicaid, as well as lower than anticipated premium costs.
But while spending on exchange subsidies is expected to be much lower, so, too, is revenue from the ACA's controversial excise tax on health plans with generous benefits, the CBO said.
The latest CBO analysis (PDF) shows the federal government is now expected to spend $1.2 trillion on the insurance coverage provisions of the federal healthcare law between 2016 and 2025, compared with $1.35 trillion estimated in January. Exchange subsidies are projected to cost roughly $200 billion less than previously anticipated, while spending on Medicaid and the Children's Health Insurance Program is expected to be $73 billion less than previously predicted.
The CBO expects 22 million people to be enrolled in exchange plans by 2025—down from the previous estimate of 24 million. During the recently completed open-enrollment period, 11.4 million Americans signed up for coverage, but that number is expected to dwindle through attrition, primarily because some customers won't pay their monthly premiums.
Enrollment in Medicaid and CHIP due to the ACA expansion is expected to be 16 million by 2025, 2 million less than previously estimated. That's in part because not all states have opted to expand coverage to households with incomes up to 138% of the federal poverty level.
The dip in estimated revenue from the excise tax provision, often called the Cadillac tax, was somewhat surprising. The Cadillac tax goes into effect in 2018. Insurers or employers will have to pay a 40% tax on every dollar above a certain benefit threshold—$10,200 for individual coverage and $27,500 for family coverage in 2018.
The CBO said the Cadillac tax will bring in about $87 billion of revenue over the next decade, a 41% drop from the agency's January estimates. Many employers have started to scale back benefits in anticipation of the excise tax, and experts believe that trend will continue as 2018 draws nearer.
“Because premiums are now projected to be lower, fewer workers are expected to be enrolled in employment-based insurance plans whose costs exceed the excise tax thresholds specified in the ACA,” the CBO analysis said.
The CBO has revised the impact of the Cadillac tax before, noted Loren Adler, a research director who follows healthcare policy at the nonpartisan Committee for a Responsible Federal Budget. He said the CBO's latest revision was significant but also symptomatic of the broader changes going on in the employer insurance market.
Many employers and business groups have decried the Cadillac tax as burdensome, but Adler wonders why more haven't taken a favorable view. “You'd think some employers would like the Cadillac tax,” Adler said. “It almost gives them a good excuse to get out of the insurance game.”
The reduced spending projections overall are also due to the broader slowdown in healthcare spending. The CBO now anticipates that spending per enrollee by private health plans will increase 4.3% annually between 2014 and 2018. That will tick up to an average of 5.9% a year between 2019 and 2025.
“The agencies' previous projection incorporated a more rapid increase in the rate of growth to a pace that was closer to that observed before 2006, but such a bounce back seems less likely in light of the further slowing of spending growth observed in the most recent data,” the report notes.
The CBO also released updated projections for how much premiums for second-lowest-cost silver plans will increase in the coming years. Those prices are significant because they serve as the benchmark for determining financial assistance.
The federal agency now anticipates that premiums for those plans will increase by 8.5% per year on average between 2016 and 2018. That relatively steep hike is due in part to the expiration of the ACA's reinsurance program, which provides payments to insurers that attract customers with particularly high medical costs. The CBO also anticipates that insurers will not be able to sustain lower provider payments and narrower networks that are used to hold down the costs of premiums.
But after 2018, premium hikes for the benchmark silver plans are expected to decelerate. Between 2019 and 2025, the CBO expects rates to increase an average of 5.6% a year.
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