The Congressional Budget Office (CBO) has released two new cost estimates associated with the Affordable Care Act (ACA) in light of recent U.S. Supreme Court and legislative events. On June 28, 2012, the Supreme Court upheld the constitutionality of the ACA’s individual mandate, but found that Congress cannot penalize states that choose not to participate in the expansion of Medicaid coverage imposed by the ACA by taking away their existing Medicaid funding.  In essence, states will not be compelled to expand their Medicaid coverage to the extent initially required under the healthcare reform law. Therefore, CBO estimates that some states will choose not to expand Medicaid eligibility. As a result, the CBO concluded that fewer people will ultimately be covered by the Medicaid program, more people will obtain health insurance through the future health insurance exchanges, and more people will remain uninsured.

Therefore, according to a revised CBO estimate, (pdf) the cost of the ACA has been reduced by $84 billion. Specifically, the insurance coverage provisions of the health care reform law are projected to have a net cost of $1,168 billion over the next decade, compared to the $1,252 billion cost projected earlier this year. According to CBO, 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 exchanges. That outcome is projected to occur despite the fact that the government’s average additional costs per person in the exchanges will be greater than its average savings per person for those who, as a result of the Court’s ruling, will not enroll in Medicaid.

CBO concludes that a key factor in net savings to the federal government is that:

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.

About 6 million fewer people are projected to be covered by Medicaid but only about 3 million more people are expected to receive subsidies through the exchanges and about 3 million more people are predicted to be uninsured. Because the average savings for each person who becomes uninsured are greater than the average additional costs for each person who will receive exchange subsidies, the projected decrease in total federal spending on Medicaid is expected to be larger than the anticipated increase in total exchange subsidies.

It is estimated that between 4 million and 6 million fewer people will have coverage through an employer, compared with coverage in the absence of the ACA. That number did not change significantly as a result of the Court’s decision. However, according to the updated estimates, employer penalty payments are expected to increase by $4 billion from previous estimates.

Repeal Legislation

On July 11, the House passed the Repeal of Obamacare Act (H.R. 6079), a bill that would repeal the ACA in its entirety.  In a letter to House Speaker John Boehner (R-OH), (pdf) the CBO provided an estimate of the direct spending and revenue effects that this bill would have if enacted. The CBO’s findings are as follows:

  • For various reasons outlined in the CBO report, the estimated budgetary effects of repealing the ACA “are not equivalent to an estimate of the budgetary effects of the ACA with the signs reversed.”
  • Repealing the ACA would lead to an increase in budget deficits over the coming decade 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.
  • Specifically, the measure would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period. The bill would reduce direct spending by $890 billion and revenues by $1 trillion between 2013 and 2022, thus adding $109 billion to federal budget deficits over that period.

The CBO’s letter emphasized that the full budgetary impact of this repeal legislation is uncertain, as the estimates are based on the “highly uncertain” projected effects of the ACA, and that “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.”