CBO: The ACA will sign up fewer Americans in 2014, shrink full-time workforce

Three key takeaways of the newest ACA projections

The Congressional Budget Office (CBO) on Tuesday released updated projections on the Affordable Care Act (ACA) that reduced enrollment expectations for 2014 and found the law will result in about 2.5 million Americans leaving the full-time workforce.

The CBO report, released Tuesday, is part of a regular update to its budget projections. The revised estimates are based on a closer examination of the ACA, including provisions affecting the labor market, and additional findings and studies of the law conducted since 2010.

New enrollment projections for 2014

CBO previously projected that about seven million Americans would purchase health insurance policies through the ACA insurance exchanges in 2014. In its latest report, CBO lowered that projection by at least one million people, primarily because of the troubled rollout of the federal health insurance exchange website last fall.

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According to CBO, five million of the six million individuals now estimated to be newly insured through the exchanges are expected to receive federal subsidies to offset premium costs for the private plans. CBO also reduced the projected amount of federal spending on the subsidies by $16 billion.

In addition, CBO analysts reported eight million people are expected to enroll in Medicaid and CHIP this year under the ACA, down from nine million that the agency projected last year. The agency also cited technical issues with HealthCare.gov for the lower projected enrollment figures.

Still, CBO noted that exchange enrollment could reach its original target if there is a surge in registrants before March 31, when the open enrollment period ends. In addition, analysts said that overall exchange enrollment could jump over the next two years, reaching 22 million by 2016.

By 2017, CBO projected that between 24 million and 25 million people would be enrolled in exchange plans. The agency estimates that about 80% of those people would receive federal subsidies and that spending on subsidies would increase from a projected $15 billion this year to $143 billion in 2024.

Overall, CBO expects that the ACA's coverage provisions will cost $41 billion in 2014 and $1.4 trillion during the 10-year period from 2015 to 2024. The 10-year cost projection is $9 billion less than what the agency projected last year for the same period.

New expectations on job losses

Meanwhile, CBO estimated that the ACA will reduce the number of full-time workers by about 2.5 million over the next decade, largely because it provides incentives for people to choose to work fewer hours.

Specifically, the analysis said the law's coverage expansion will make working fewer hours a more attractive option to those who previously worked full time to qualify for employer-based health insurance.

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Further, the law's subsidies to offset the cost of premiums also provide an incentive for workers to reduce their hours through both a "substitution effect," in which higher incomes mean lower subsidies, and an "income effect," in which the subsidies bolster household incomes allowing people to maintain their standard of living while working fewer hours.

Overall, the report projected that total employment and compensation will rise over the next 10 years, while full-time employment will decline by about two million in 2017 and 2.3 million in 2021, nearly triple CBO's previous estimate of 800,000. CBO analysts also noted that overall the increase would be "smaller than it would have been in the absence of the ACA."

Despite the findings, CBO concluded that there is little evidence showing that the ACA is affecting employment. It added that businesses are not expected to significantly cutback on workers or worker hours because of the law.

An insurance 'bailout'?

The report also found that the "risk corridors" provision in the Affordable Care Act will net the federal government $8 billion between 2015 and 2017. The law's risk corridors provision permits federal payments to health insurers to help offset high costs they might incur by enrolling a higher-than-expected number of sick individuals. Republicans have criticized the provision, calling it a "bailout" for health insurers.

CBO previously had estimated that the incoming payments would offset any payments made to insurers.  However, CBO discovered that a recent change to the ACA made the risk corridor provision similar to a system used by Medicare Part D, under which insurers' profits consistently have exceeded premium payments. Part D averages about $1 billion in collections annually, or between 2% and 3% of the overall costs for prescription drugs in the program.

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CBO concluded that under the provision, the government would distribute about $8 billion to insurers between 2015 and 2017. Those payouts come from a fund made up of payments from insurers that experience lower-than-expected claims. The payments are expected to reach $16 billion between 2015 and 2017, resulting in a net of $8 billion, according to CBO.

House Republicans have been considering demanding the Obama administration end the risk corridor provisions in exchange for GOP votes to raise the debt ceiling (Lowrey/Weisman, New York Times, 2/4; Viebeck, "Healthwatch," The Hill, 2/4; Ethridge, CQ Roll Call, 2/4 [subscription required]; Zigmond, Modern Healthcare, 2/4 [subscription required]; Goldfarb/Goldstein, Washington Post, 2/4; Wasson, "On The Money," The Hill, 2/4; Carey, "Capsules," Kaiser Health News, 2/5).

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