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CBO: Deficit problem lessens as health spending slows

Report revises projected impact of the ACA

Topics: Reimbursement, Finance, Revenue Cycle, Labor Expense

May 15, 2013

The Congressional Budget Office (CBO) this week revised the estimated impact of the Affordable Care Act and found that a slowdown in health care spending growth may be lowering deficit projections.

CBO finds that fewer Americans will gain insurance under the ACA

As part of a new report projecting the federal deficit, CBO lowered its estimates for the number of individuals and businesses that will be affected by the Affordable Care Act's (ACA) taxes and coverage mandates.

According to The Hill’s "Healthwatch," the new projections update CBO's estimates in February for the cost of the ACA's coverage provisions, particularly the law's new coverage options and certain coverage-related penalties.

CBO estimated that by 2023, about 25 million U.S. residents will gain coverage under the ACA—two million fewer than the agency estimated in February—and 31 million will be uninsured, one million more than the earlier estimate.

The agency attributed the revised insured and uninsured figures to regulations—proposed by HHS and the Department of Treasury in December 2012—that expanded the number of individuals who would be exempt from penalties for failing to obtain insurance under the ACA. According to the new CBO report, the proposed regulations will exempt an additional 500,000 to one million individuals from the penalties, resulting in mandate revenues dropping by $7 billion, to $45 billion.

In addition, CBO estimated that by 2023, 24 million U.S. residents will enroll in the ACA's health insurance exchanges, down from 25 million in the February estimate. As a result, CBO reduced its cost estimate for exchange subsidies and related spending by $137 billion from 2014 through 2023.

Meanwhile, the estimated number of individuals expected to enroll in Medicaid and CHIP in 2023 was raised from 12 million to 13 million. CBO said the increase "stems primarily from our expectation that more potentially newly eligible Medicaid beneficiaries will be residents of states that fully extend Medicaid coverage" under the ACA.

CBO also projected a $58 billion reduction in excise tax revenues on generous private insurance plans and $10 billion less from employer penalties, from its February estimates. The agency also reported that it now expects more U.S. residents to gain or maintain employer-sponsored health coverage, which means fewer businesses would have to pay the ACA's employer mandate penalty for each uninsured worker, "Healthwatch" reports.

Overall, the budgetary effects of the ACA's coverage provisions "has changed little since February 2013 and indeed has changed little since the legislation was being considered in March 2010," CBO said. The total cost estimate for the coverage provisions has been pegged at $710 billion from fiscal year 2014 through FY 2019, down slightly from a $759 billion estimate in February.

CBO lowers annual deficit projections

Meanwhile, CBO predicted that the annual deficit for the fiscal year ending on Sept. 30 will shrink by $200 billion to $642 billion—or 4% of the gross domestic product—in part because of lower growth in health care costs in Medicare and Medicaid.

CBO also reduced its 10-year estimates for Medicare and Medicaid spending by $162 billion, primarily because of a continuing trend toward slower health care cost growth, according to Reuters. Over the next decade, Medicare spending is expected to fall from about $8.1 trillion to $7.9 trillion, while Medicaid spending is projected to fall from $4.4 trillion to $4.3 trillion.

However, CBO predicts that deficits will gradually begin rising after 2015 as more baby boomers become eligible for Medicare (Baker, "Healthwatch," The Hill, 5/14; Reichard, CQ HealthBeat, 5/14 [subscription required]; Morgan, Reuters, 5/14; Lowrey, New York Times, 5/14; Lawder/Nasir, Reuters, 5/15; Montgomery, Washington Post, 5/14).

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