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Report projects health care costs to dip slightly

Published: Monday, April 14, 2014 5:35 p.m. CDT

WASHINGTON – The Affordable Care Act’s health insurance subsidies will cost a little less than previously thought, according to a new report released Monday.

The Congressional Budget Office predicts that health insurance subsidies under the so-called “Obamacare” plan will total a little more than $1 trillion over the next 10 years, instead of almost $1.2 trillion initially estimated.

CBO said the 8 percent cut results largely from tighter cost controls by insurance companies offering plans on health care exchanges. Generally speaking, the plans offered on the exchanges pay health care providers less and have tighter management of patients’ treatment options, and that means lower premiums and taxpayer subsidies.

Medicaid adds almost $800 billion in costs over the decade. Overall, however, the health care law reduces the deficit because of tax hikes, penalties paid by people and businesses that forgo insurance, and curbs on Medicare.

Overall, the report is positive news for the White House and its Democratic allies on Capitol Hill, who are under assault politically after the health care law’s troubled roll-out and as it remains unpopular with many voters. CBO’s predictions of the number of people covered by the law haven’t changed much and it is holding firm to predictions that 6 million will get coverage through health insurances exchanges this year. The White House has boasted that 7.5 million people have signed up, although some people will have coverage for only part of the year and not all of the enrollees have paid their premiums.

All told, combining a host of factors, CBO finds that the net cost of the Affordable Care Act’s coverage provisions will be $104 billion less than previously thought over the next 10 years, tallying $1.4 trillion instead of more than $1.5 trillion. The factors are complex, but they include higher excise tax revenues from so-called Cadillac health plans and lower general tax revenues, because more people than expected receive tax-free compensation in the form of employer-sponsored health insurance.

The report also predicts that premiums won’t skyrocket next year as some fear. Insurance companies are no longer allowed to reject people for pre-existing health conditions. But CBO does say that premiums will rise moderately from an average of $3,800 in 2014 to an average of $3,900 for 2015, which would be good news for the Obama administration if the projections panned out.

The average exchange subsidy will rise from $4,410 this year to $7,170 in 2024, CBO says, helping drive the percentage of nonelderly people covered by health insurance to 92 percent of the population legally residing in the country.

Premiums have come in lower than CBO projected a few years back. The agency also says that people signing up next year will be younger and healthier than those who enrolled this year. CBO says premiums should increase by about 6 percent per year after from 2016.

The new estimates of the health care law are contributing to a slightly improved overall deficit picture. CBO said in a separate report on Monday that federal budget deficits over the coming 10 years will be $286 billion less than estimated in February. This year’s deficit would dip to $492 billion from the $514 billion figure cited two months ago.

CBO is a nonpartisan congressional agency that does research and cost estimates for lawmakers.

It seems plain that the agency is grappling with the effects the wide-ranging law will have. Modest tweaks to its estimates can add up to tens of billions of dollars.

Earlier this year, CBO caused a tempest when it predicted the benefits of the health care law would cause some people to work less, dampening economic growth.

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