The Congressional Budget Office released a new cost estimate for the Patient Protection and Affordable Care Act on Tuesday to account for the Supreme Court’s June 28th decision to uphold the law in part and strike down some of its Medicaid provisions. CBO determined that the law would now cost $84 billion less while covering 3 million fewer people.
ObamaCare was initially structured to force states to expand their Medicaid programs to cover all those with incomes below 138% of the poverty line while the exchange system would provide subsidies for those with incomes above that level to purchase private insurance. Pre-ObamaCare, coverage levels vary widely from state to state, but rarely cover everyone under the poverty line. States won the right to opt out of expanding their Medicaid coverage to those earning up to 138% of the federal poverty level. The law allows exchange subsidies to go to those earning between 100% and 138% of the poverty line, but not anyone below that. The government spends much more per person on exchange subsidies than Medicaid coverage.
CBO suspects several states will choose not to increase their Medicaid rolls at all, some will only do it partially, and others will comply as originally planned. This will result in 6 million fewer enrolled in Medicaid and 3 million more enrolled in the insurance exchanges. Here’s how it explains the cost differential this creates:
For the average person who does not enroll in Medicaid as a result of the Court’s decision and enrolls in an exchange instead, estimated federal spending will rise by roughly $3,000 in 2022—the difference between estimated additional exchange subsidies of about $9,000 and estimated Medicaid savings of roughly $6,000
It’s particularly clear in their accompanying chart.
Contrast CBO’s cost estimate with one done for e21 by Charles Blahous immediately following the Court decision: “[U]nder past estimates, a 1 million-person reduction in the law’s reliance on Medicaid has meant an increase in net costs of about $50-$90 billion over ten years.” Former CBO Director Douglas Holtz-Eakin also estimated that the new Medicaid expansion would cost hundreds of billions of dollars. As CBO doesn’t disclose much of its methodology, it’s difficult to know why the estimates differ so much.
In addition to the Medicaid expansion, the other major holding by the Court was that the individual mandate was only permissible as a tax instead of as a penalty or a mandate. Jim Capretta and Yuval Levin argued in National Review Online that CBO’s conclusion that people would comply with the mandate was no longer valid now.
If you argued that the mandate was the linchpin of the system, and that it would work despite its low and unenforceable penalty because Americans are a law-abiding people, you should now see that the mandate as you understood it no longer exists. The CBO should certainly acknowledge this in its new score of the law’s effects on federal spending and the uninsured, due out later this month.
Unfortunately, CBO did not alter their set up assumptions about compliance with the individual mandate at all:
The Supreme Court’s decision upholding the constitutionality of the ACA’s provision requiring most individuals to obtain insurance coverage or pay a penalty tax does not change CBO and JCT’s assessment of the mandate’s effect on coverage. Under the ACA, the consequence for not obtaining required coverage—the “shared responsibility payment”—is a penalty paid to the Treasury by taxpayers when they file their tax returns and enforced by the Internal Revenue Service. CBO and JCT’s previous estimates of the mandate’s impact on people’s decisions to obtain insurance drew heavily from the literature on compliance with tax law. More generally, those estimates were based on an assessment of the strength of incentives—both financial and otherwise—to buy insurance. Financial considerations include the amount of any costs for premiums and cost sharing, as well as the penalty, if applicable, for not having insurance. Nonmonetary factors include the probability of detection, attitudes toward risk, enforcement procedures, awareness of the mandate, and social norms reflecting the prevalence of coverage.
The final noteworthy conclusion is that CBO calculated that the 3 million people who will join the insurance exchanges instead of going on Medicare will be slightly sicker than average, and it will drive up premiums by 2 percent.