On July 24, 2012, the Congressional Budget Office (CBO), which performs nonpartisan analysis for the U.S. Congress, released two reports related to the Affordable Care Act (ACA):
- One report presents updated projections of the budgetary effects of the coverage provisions of the ACA to reflect the Supreme Court’s recent decision.
- The other report presents a cost estimate for the repeal of the ACA, which was passed the House of Representatives on July 11th.
CBO and the staff of the Joint Committee on Taxation (JCT) have updated their estimates of the budgetary effects of the health insurance coverage provisions of the ACA to take into account the Supreme Court decision. The report describes those new estimates, how they were derived, and how they differ from the previous ones.
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.
CBO and JCT estimate that, on balance, the direct spending and revenue effects of repealing the ACA would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period. Specifically, CBO estimates that repeal 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. Deficits would be increased by repeal 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.
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.
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.
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.
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.
CBO and the staff of the JCT have also 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 ACA, with the exception of one subsection that has no budgetary effect.
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 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.
Reasons for the increase in the deficit include:
- The ACA includes a number of 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.
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.
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.