November 19, 2009
Last night CBO and the staff of the Joint Committee on Taxation (JCT) issued an estimate of the budgetary effects of the Patient Protection and Affordable Care Act proposed by Senator Reid. Among other things, the bill would establish a mandate for most legal residents of the United States to obtain health insurance; set up insurance exchanges through which certain individuals and families could receive federal subsidies to substantially reduce the cost of purchasing that coverage; significantly expand eligibility for Medicaid; substantially reduce the growth of Medicares payment rates for most services (relative to the growth rates projected under current law); impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the federal tax code, Medicare, Medicaid, and other programs.
Estimated Budgetary Impact
CBO and JCT estimate that the direct spending and revenue effects of enacting the Patient Protection and Affordable Care Act would yield a net reduction in federal deficits of $130 billion over the 2010-2019 period. That estimate is subject to substantial uncertainty.
The estimate includes a projected net cost of $599 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $848 billion in subsidies provided through the exchanges, increased net outlays for Medicaid and the Childrens Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $149 billion in revenues from the excise tax on high-premium insurance plans and $100 billion in net savings from other sources. Over the 20102019 period, the net cost of the coverage expansions would be more than offset by the combination of other spending changes that CBO estimates would save $491 billion and other provisions that JCT and CBO estimate would increase federal revenues by $238 billion.
In total, CBO and JCT estimate that the legislation would increase outlays by $356 billion and increase revenues by $486 billion between 2010 and 2019.
Effects of Provisions Regarding Insurance Coverage
By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 31 million, leaving about 24 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the legislation, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent.
About 25 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 15 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people purchasing individual coverage outside the exchanges would decline by about 5 million, and the number obtaining coverage through their employer would also decline by about 5 million. Roughly one out of eight people purchasing coverage through the exchanges would enroll in the public plan administered by the Secretary of Health and Human Services, CBO estimates, meaning that total enrollment in that plan would be 3 million to 4 million.
Effects of the Legislation Beyond the First 10 Years
Although CBO does not generally provide cost estimates beyond the 10-year projection period (2010 through 2019 currently), many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nations health care and health insurance systems. A detailed year-by-year projection for years beyond 2019, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great. CBO has therefore developed a rough outlook for the decade following the 10-year budget window.
All told, the legislation would reduce the federal deficit by $8 billion in 2019, CBO and JCT estimate. In the decade after 2019, the gross cost of the coverage expansion would probably exceed 1 percent of gross domestic product (GDP), but the added revenues and cost savings would probably be greater. Consequently, CBO expects that the bill, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current lawwith a total effect during that decade that is in a broad range around one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBOs 10-year budget estimates. The expected reduction in deficits would represent a small share of the total deficits that would be likely to arise in that decade under current policies.
CBO uses the term federal budgetary commitment to health care to describe the sum of net federal outlays for health programs and tax preferences for health careproviding a broad measure of the resources committed by the federal government that includes both its spending for health care and the subsidies for health care that are conveyed through reductions in federal taxes. During the 2010-2019 period, that budgetary commitment would be about $160 billion higher under the legislation than under current law. CBO expects that, during the decade following the 10-year budget window, the increases and decreases in the federal budgetary commitment to health care stemming from this legislation would roughly balance out, so that there would be no significant change in that commitment. The range of uncertainty surrounding that assessment is quite wide.
These longer-term calculations assume that the provisions are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate (SGR) mechanism governing Medicares payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration in the Congress. The legislation would put into effect a number of procedures that might be difficult to maintain over a long period of time. Although it would increase payment rates for physicians services for 2010 relative to those in effect for 2009, those rates would be reduced by about 23 percent for 2011 and then remain at current-law levels (that is, as specified under the SGR) for subsequent years. At the same time, the legislation includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). The projected longer-term savings for the legislation also assume that the Independent Medicare Advisory Board that would be established by the bill is fairly effective in reducing costsbeyond the reductions that would be achieved by other aspects of the billto meet the targets specified in the legislation.
Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decadeswell below the roughly 8 percent annual growth rate of the past two decades (excluding the effect of establishing the Medicare prescription drug benefit). Adjusting for inflation, Medicare spending per beneficiary under the bill would increase at an average annual rate of roughly 2 percent during the next two decadesmuch less than the roughly 4 percent annual growth rate of the past two decades. Whether such a reduction in the growth rate could be achieved through greater efficiencies in the delivery of health care or would reduce access to care or diminish the quality of care is unclear.