February 18, 2011
This afternoon, CBO issued two letters related to health care legislation:
- An estimate of the budgetary effects of H.R. 2, a bill to repeal the major health care legislation that was enacted last year—specifically, the Patient Protection and Affordable Care Act (PPACA) and the provisions of the Health Care and Education Reconciliation Act of 2010 that are related to health care. (H.R. 2 was passed by the House of Representatives on January 19.) It is a more detailed estimate than the preliminary estimate for H.R. 2 that CBO issued on January 6. This letter is discussed below under the heading “Estimate for H.R. 2 Relative to Current Law.”
- An analysis of the budgetary effects of H.R. 2 over the 2022-2031 period, assuming that certain provisions of PPACA and the Reconciliation Act would, as a result of subsequent legislation, not have taken effect as currently specified in law. That letter is discussed below under the heading “Analysis of the Long-Term Budgetary Impact of H.R. 2 Assuming Certain Provisions of Law Do Not Take Effect.”
The estimates deal with the effects of H.R. 2 on federal revenues and direct spending (that is, spending that does not depend on future appropriation actions).
ESTIMATE FOR H.R. 2 RELATIVE TO CURRENT LAW
For the most part, the budgetary impact of repealing the health care legislation is similar to the impact of enacting it, with the opposite sign. But there are some differences. This estimate reflects a number of developments that have occurred since CBO and the staff of the Joint Committee on Taxation (JCT) produced the cost estimate for the March 2010 legislation, including changes in the economic outlook, technical revisions to CBO’s projections of program spending, the initial steps that have been taken to implement the new laws, and enactment of legislation that modified those laws. Those developments did not have a major effect on the overall budgetary impact of repealing the legislation. In addition, CBO has seen no evidence to date that the steps that will be taken to implement the March legislation—or the ways in which participants in the health care and health financing systems will respond to that legislation—will yield overall budgetary effects that differ significantly from the ones that CBO and JCT projected earlier.
The estimate for H.R. 2 differs in one significant way from the estimate for the enacted health care legislation. The original estimate covered the period from 2010 through 2019, the period used for Congressional budget enforcement procedures when the legislation was being considered; the new estimate spans the period currently used for budget projections and estimates, 2012 to 2021.
Impact on the Federal Budget in the First Decade
CBO and JCT estimate that, on balance, the direct spending and revenue effects of enacting H.R. 2 would cause a net increase in federal budget deficits of $210 billion over the 2012-2021 period. By comparison, last March CBO and JCT estimated that enacting PPACA and the health-related provisions of the Reconciliation Act would reduce federal deficits by $124 billion over the 2010-2019 period. The difference between the two estimates for the 10-year projection periods is primarily attributable to the different time periods they cover. Over the eight years that are common to the two analyses (2012-2019), enactment of PPACA and the health-related provisions of the Reconciliation Act was projected last March to reduce federal deficits by $132 billion, whereas the repeal of that legislation is projected now to increase deficits by $119 billion.
Those projections do not include any potential savings in discretionary spending, which is governed by annual appropriation acts. By CBO’s estimates, repeal of the health care legislation would probably reduce the appropriations needed by the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Similar savings would accrue to the Department of Health and Human Services.
There is no clear basis for projecting other effects of H.R. 2 on discretionary spending. PPACA contained a number of authorizations for future appropriations, which, if left in place, might or might not result in additional appropriations. For example, most of the authorizations were for activities that were already being carried out under current law or that were previously authorized and that PPACA authorized for future years. Thus, repeal of the PPACA authorizations might or might not result in discretionary savings associated with those authorizations.
Impact on the Federal Budget Beyond the First 10 Years
Because PPACA and the Reconciliation Act were projected to reduce deficits in the decade following the 10-year projection period, CBO estimates that enacting H.R. 2 would increase federal deficits during the decade following the initial 10-year period. Specifically, the total increase in deficits during the 2022-2031 period would lie in a broad range around one-half percent of gross domestic product (GDP).
As with all of CBO’s cost estimates, these estimates—both for the first 10 years and beyond—reflect an assumption that the provisions of current law would otherwise remain unchanged throughout the projection period and that the legislation being considered would be enacted and implemented in its current form. CBO’s responsibility to the Congress is to estimate the effects of proposals as written and not to forecast future legislation. However, current law now includes a number of policies that might be difficult to sustain over a long period of time. If those policies or other key aspects of the original legislation would have subsequently been modified or implemented incompletely, then the budgetary effects of repealing PPACA and the relevant provisions of the Reconciliation Act could be quite different—but CBO cannot forecast future changes in law or assume such changes in its estimates.
Effects on the Federal Budgetary Commitment to Health Care
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 care. H.R. 2 would roughly reverse the outcome projected for the original legislation, diminishing the federal budgetary commitment to health care by an estimated $464 billion over the next decade and increasing it in subsequent years.
Effects on the Number of People With Health Insurance
Under H.R. 2, about 33 million fewer nonelderly people would have health insurance in 2021, leaving a total of about 57 million nonelderly people uninsured. The share of legal nonelderly residents with insurance coverage in 2021 would be about 82 percent, compared with a projected share of 95 percent under current law (and 83 percent currently).
Effects on Health Insurance Premiums
If H.R. 2 was enacted, premiums for health insurance in the individual market would be somewhat lower than under current law, mostly because the average insurance policy in this market would cover a smaller share of enrollees’ costs for health care and a slightly narrower range of benefits. Although premiums in the individual market would be lower, on average, under H.R. 2 than under current law, many people would end up paying more for health insurance—because under current law, the majority of enrollees purchasing coverage in that market would receive subsidies via the insurance exchanges, and H.R. 2 would eliminate those subsidies.
Premiums for employment-based coverage obtained through large employers would be slightly higher under H.R. 2 than under current law. Premiums for employment-based coverage obtained through small employers might be slightly higher or slightly lower (reflecting uncertainty about the impact of the enacted legislation on premiums in that market).
ANALYSIS OF THE LONG-TERM BUDGETARY IMPACT OF H.R. 2 ASSUMING CERTAIN PROVISIONS OF LAW DO NOT TAKE EFFECT
In response to a question from Congressman Paul Ryan, Chairman of the House Budget Committee, CBO analyzed the long-term effects on the federal budget of enacting H.R. 2 if certain provisions of PPACA and the Reconciliation Act would, as a result of subsequent legislation, not have taken effect. In particular, CBO developed a rough outlook regarding the effects of H.R. 2 in the 2022-2031 period if:
- The excise tax on insurance policies with relatively high premiums—which was established by PPACA and the Reconciliation Act, and which will take effect in 2018—would have been repealed even in the absence of H.R. 2.
- The provisions of PPACA and the Reconciliation Act projected to reduce spending for the Medicare program would have been partially overturned even in the absence of H.R. 2, so that only one-half of the total savings to Medicare projected to result from enactment of PPACA and the Reconciliation Act would have accrued even in the absence of H.R. 2.
CBO expects that, supposing that those specific changes would have occurred anyway through subsequent legislation, enactment of H.R. 2 would reduce federal deficits in the decade beyond 2021 by an amount between zero and one-quarter percent of GDP. (In contrast, in its analysis of the effects of H.R. 2 relative to current law, CBO projected that enactment of that legislation would increase federal deficits during the decade beyond 2021 by an amount that is in a broad range around one-half percent of gross domestic product.)