CBO Estimates Drop in Federal Medicaid Costs Due to Supreme Court's Decision

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By Ralph Lindeman  

Federal Medicaid outlays are expected to drop by about $84 billion as a result of the U.S. Supreme Court's recent decision allowing states to opt out of the program's expansion, while the House's recent repeal of the entire health reform law would increase the federal deficit by some $109 billion over 10 years, according to two new estimates released July 24 by the Congressional Budget Office.

The two estimates issued by CBO and the staff of the Joint Committee on Taxation provide updates on the costs of the Patient Protection and Affordable Care Act in light of the Supreme Court's June 28 decision making PPACA's Medicaid expansion voluntary among the states (125 HCDR, 6/29/12), and the July 11 repeal of PPACA by the House (133 HCDR, 7/12/12).

On the Medicaid expansion, federal spending would decrease by about $84 billion over the 2012-2022 period because an undetermined number of states will decide not to participate in the joint federal-state health care program for the poor, the CBO report said.


The report does not attempt to predict the number of states that might opt out of the Medicaid expansion.  


The report does not attempt to predict the number of states that might opt out of the Medicaid expansion. Rather, CBO said its estimate reflected a “middle” distribution of possible outcomes, including the number of people in different income groups residing in the states.

The estimated direct spending and revenue effects of the repeal of PPACA under H.R. 6079, the repeal measure which passed the House but is unlikely to proceed in the Senate, would result in a net increase in the federal budget deficit of $109 billion over the 2013-2022 period, the CBO report said.

In February 2011, CBO estimated that PPACA as enacted would reduce the deficit by $210 billion over 10 years. CBO said the repeal cost estimate reflects changes in PPACA and the economic outlook since then.

More Uninsured With Medicaid Change.

Because it is unlikely all states will participate in the Medicaid expansion, scheduled to begin in 2014, federal spending in Medicaid and the Children's Health Insurance Program (CHIP) is expected to drop, leaving some 6 million fewer adults and children insured under those programs than originally estimated, CBO said.

At the same time, federal spending on subsidies for people to obtain insurance on new state-based insurance exchanges will increase because some of those no longer eligible for expanded Medicaid and CHIP will be eligible for exchange subsidies, CBO said. About 3 million more people than originally expected will be able to obtain federal subsidies to purchase insurance on the exchanges, CBO projected.

Overall, the net spending on Medicaid and federal exchange subsidies would reduce the number of people without health insurance by 30 million by 2022, leaving 30 million uninsured by that time, CBO said. Before the court's decision, CBO estimated there would be 27 million uninsured by 2022.

Spending Shifts From Medicaid to Exchanges.

Federal spending on Medicaid and CHIP over the 2012-2022 period is now estimated to be $289 billion less than previously expected, CBO said, whereas the estimated costs of tax credits and other subsidies on the exchanges has increased by $210 billion. Adding in some smaller reductions in spending totaling about $5 billion, the CBO estimate shows a net reduction in federal spending over the 10-year period of $84 billion.

According to CBO's estimate, the average amount of federal subsidies on the exchanges has increased because the additional enrollees resulting from the Supreme Court's decision will have lower average incomes than those previously expected to purchase insurance on the exchanges. They are also likely to spend more on health care, CBO noted.

Under PPACA, the Medicaid expansion will cover people with incomes up to 133 percent of the federal poverty level. To be eligible for subsidies on the exchanges, individuals and families must have incomes between 100 percent and 400 percent of the FPL and have access to no other insurance.

Newly eligible Medicaid enrollees living in states not participating in the Medicaid expansion will be eligible to receive subsidies on the exchanges if they have incomes between 100 percent and 400 percent of the FPL, leaving some 3 million people with incomes below 100 percent of FPL without any coverage, CBO noted.

Commenting on the CBO estimate, Bruce Siegel, president and CEO of the National Association of Public Hospitals and Health Systems, said in a statement: “The combined impact of more uninsured and significantly reduced support for uncompensated care--reductions premised on a broader expansion of Medicaid than seems likely now--will sorely strain the capacity” of the hospitals.

Repeal Would Increase Deficit, CBO Says.

In a separate estimate on the costs of repealing PPACA, CBO in a letter to House Speaker John Boehner (R-Ohio) said the federal deficit would increase by about $109 billion over the 2013-2022 period. The savings generated by not having to pay for expanded Medicaid coverage or exchange subsidies “would be more than offset by the combination of other spending increases and revenue reductions,” CBO said.

In particular, CBO noted, repealing PPACA would result in lower revenues by:

• eliminating penalty payments by individuals who did not obtain insurance coverage;

• eliminating payments by employers whose workers receive exchange subsidies; and

• eliminating the excise tax on high-premium insurance plans.


Medicare Spending Would Increase.

In addition, the CBO letter noted that spending for Medicare would increase by an estimated $716 billion over 2013-2022 as a result of:

• repealing the reductions in the annual updates to Medicare's payment rates for providers;

• repealing the new mechanism for setting payment rates in the Medicare Advantage program; and

• repealing the reductions in Medicaid and Medicare payments to hospitals serving a large number of low-income uninsured.


“Projections of the budgetary impact of H.R. 6079 are quite uncertain,” CBO cautioned, “because they are based, in large part, on projections of the effects of the [law], which are themselves highly uncertain.”

Moreover, H.R. 6079 does not explain how parts of the law that were changed by PPACA would be restored “as if the [law] had never been enacted,” CBO noted. “Because of that ambiguity, H.R. 6079 would cede considerable discretion to the executive branch to implement its provisions,” CBO said.

Commenting on the CBO letter to Boehner, House Democratic Leader Steny Hoyer (D-Md.) said in a statement: “These numbers tell a powerful story: the health reform legislation we passed in the Democratic-controlled 111th Congress is achieving the goals of expanding access to insurance coverage and controlling the growth of costs for Americans' care.”

By Ralph Lindeman  

The CBO report on the budgetary impacts of the Supreme Court's decision on Medicaid expansion is at http://www.cbo.gov/publication/43472. The letter to Speaker Boehner on the budgetary impact of repealing PPACA is at http://www.cbo.gov/publication/43471.

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