The Congressional Budget Office (CBO), acting on the request of House Democrats, issued a report on the impacts of ending the Affordable Care Act’s (ACA) Cost-Sharing Reduction (CSR) payments. Through this program, the federal government provides subsidies to insurers to lower co-payments and deductibles for households earning between 100 and 200 percent of the federal poverty level (FPL) that purchase the so-called “silver” plans through the ACA’s exchanges. Because CBO has apparently not adjusted its model to account for the continued lower sign up rate in the exchanges than it has repeatedly forecast, the costs it found for repealing the CSR are exceedingly and unexpectedly high: CBO found that a $118 billion savings over ten years would somehow add nearly $200 billion to the deficit.
It was expected that ending the subsidy – which is under legal challenge – would increase premiums. CBO determined that health insurance premiums would rise 20 percent above the expected level in its baseline projection. But:
Because CBO and [the Joint Committee on Taxation] anticipate that most insurance commissioners would eventually permit insurers to substantially increase the gross premiums for silver plans in the marketplaces and not to do so for other plans, almost all people at other income levels would then buy other plans. [Emphasis added.]
CBO assumes that premiums would not be permitted to rise as much in bronze and gold plans because there is no federal cost-sharing in those plans, and that doing so would distort the prices in those markets.
Because of this, CBO argues that people who were on the silver plan would see higher premiums, be eligible for higher premium tax credits, and many would move to plans that had greater actuarial value than their current plans:
In particular, because tax credits would increase and gross premiums for plans other than silver plans in the marketplaces would not change substantially, many people with income between 200 percent and 400 percent of the FPL would, compared with outcomes under the baseline, be able to pay lower net premiums for insurance that pays for the same share (or an even greater share) of covered benefits. As a result, more people would purchase plans in the marketplaces than would have otherwise and fewer people would purchase employment-based health insurance reducing the number of uninsured people, on net, in most years.
Under these assumptions, many consumers will move to better plans, and more people will be covered by 2020. CSR payments totaled $7 billion in 2016, and if kept in place, are forecast to double by 2023. CBO estimates that ending the payments would save $118 billion over the next ten years, but the higher refundable premium tax credit payments would boost spending by $309 billion.
CBO has been faulted in the past for its exceedingly optimistic estimates of coverage through the ACA exchanges and that seems to be happening in this newest report as well. Although CBO claims that it endeavors to “develop budgetary estimates that are in the middle of the distribution of potential outcomes,” its premium tax credit estimate is far higher than other projections of ending the CRS. For example, the Kaiser Family Foundation estimated that net costs would increase by $31 billion if the payments end.
As always, it is crucial to heed the significant uncertainties in estimates of this nature, especially given CBO’s history of off-target health care projections. Different assumptions can lead to much different outcomes. As CBO notes:
... [T]he increases in tax credits could be smaller than projected if more people than [CBO and JCT] expect lived in states requiring insurers to spread premium increases in 2018 across bronze, silver, and gold plans in the marketplaces as well as outside them, rather than focusing the increases on silver plans in the marketplaces.
Such uncertainties are one reason NTUF created the Taxpayers’ Budget Office(TBO) project, which is designed to critically and constructively analyze CBO estimates. It is high time that policymakers and the media look behind superficial depictions and recognize the serious variability that many of these calculations have.
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