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Health Law Cost Estimates Drop on Slowdown in Medical Inflation

By Melissa Attias, CQ Roll Call

March 9, 2015 -- The projected cost of the 2010 health care law's coverage provisions has "decreased notably" on a year-by-year basis since its enactment, according to the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), which put the tab at $506 billion from fiscal 2015 to 2019.

The agencies, in a recent report, said a general slowdown in medical inflation combined with factors such as a Supreme Court ruling that effectively made the law's Medicaid expansion optional for states, dropped the cost 29 percent from their March 2010 estimate of $710 billion. 

"Although it is unclear how much of that slowdown is attributable to the recession and its aftermath and how much to other factors, the slower growth has been sufficiently broad and persistent to persuade CBO and JCT to significantly lower their projections of federal costs for health care," the agencies wrote.

The estimates were included in CBO's updated budget projections, which were set to be released last week before a snowstorm prompted the closure of federal offices.

According to CBO and JCT, the projected cost of the health law's insurance provisions dropped $142 billion, or 11 percent, from estimates from January due to lower projected premiums. That, in turn, led to smaller estimates for the cost of government subsidies provided to people buying policies in health insurance exchanges. A slightly lower estimate of the number of people who will gain coverage through the law also contributed, which stems from new data about past coverage sources and the uninsured.

The agencies said they now estimate that the law will decrease the number of uninsured by 24 million to 25 million for most of the next decade compared to what would have been the case without the overhaul. Overall, they projected that the law's coverage provisions would cost the federal government $1.2 billion from fiscal 2016 to 2025.

Based on the new data, CBO and JCT revised their pre-2014 insurance estimates by reducing the number of people with coverage through their employers, boosting the amount of workers employed by businesses with at least 1,000 employees and lowering the number of uninsured. New information from the Centers for Medicare and Medicaid Services also showed higher Medicaid enrollment before 2014 than earlier estimates.

As a result, the agencies expect, to some extent, a smaller drop in employer-based coverage under the law, fewer people getting coverage through the exchanges and Medicaid, fewer enrolling in Medicaid due to the overhaul and a smaller total number of uninsured.

CBO and JCT also lowered their estimate of exchange enrollment for calendar year 2015 to about 11 million people from 12 million, based on data through mid-February. By the end of the special enrollment period in April, they expect more than 12 million people will have chosen a plan. But they project that the average number of people with exchange coverage will be slightly under that figure since some will only be covered for part of the year and attrition is anticipated.

While premium growth for employer-based coverage and exchange coverage "will generally reflect the underlying trend in spending by private health insurers," CBO and JCT projected that the average cost of the benchmark exchange plan for calculating subsidies will rise 8.5 percent per year on average from fiscal 2016 to 2018.

That's because exchange premiums are expected to rise faster during that timeframe as payments from the government to insurers with particularly high-cost enrollees are phased out over the next two years. In addition, the agencies do not think many plans will be able to maintain the low payment rates for providers or narrow networks.

Over the fiscal 2016 to 2025 period, CBO and JCT estimated that the benchmark premium in the insurance exchanges would grow by an average of 6.4 percent a year.

The agencies also lowered their estimate of federal revenue from the law's excise tax on high-cost employer plans by 41 percent, or $62 billion, from fiscal 2016 to 2025, compared to previous estimates. Fewer employees are expected to be enrolled in plans that would be taxed because premiums are estimated to be lower.

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