On July 24, 2012, the Congressional Budget Office (CBO) released two reports on the Affordable Care Act (ACA).  One report (the Insurance Coverage Report) analyzes the budgetary effects of the ACA in light of last month’s Supreme Court decision.  The other report (the H.R. 6079 Report) considers the direct spending and revenue effects of H.R. 6079—the “Repeal of Obamacare Act”—which the House of Representatives passed on July 11, 2012.

In the Insurance Coverage Report, CBO updates estimates previously published in a March 2012 report and specifically focuses on the impact of the Court’s decision to make the expansion of Medicaid a state option rather than a requirement.  CBO had previously estimated that from 2012 to 2022, the ACA’s insurance coverage provisions would have a net cost of $1.252 trillion.  After the Court’s decision, CBO has lowered its cost estimate over the same period by $84 billion, to $1.168 trillion.  In particular, CBO now predicts that by 2022:

• Medicaid and Children’s Health Insurance Program (CHIP) enrollment will not increase as greatly as previously estimated (In March 2012, CBO estimated 13 million new enrollees, but CBO’s current estimate includes only 7 million new enrollees, representing a decrease of 6 million enrollees from CBO’s prior estimate.);
• 3 million more people than previously estimated will obtain health insurance through the ACA’s insurance exchanges; and
• The total number of uninsured nonelderly people will decrease under the Affordable Care Act by approximately 30 million people, which represents an increase of 3 million uninsured individuals over CBO’s March 2012 estimate.

CBO attributes the projected decrease in coverage set out in the Insurance Coverage Report—and the associated increase in savings—to the anticipated decision by some states to not expand Medicaid coverage to the “full extent authorized by the [law]” or to opt out of expansion entirely.  CBO’s March 2012 projections were based in part on the assumption that, under the ACA, states would expand Medicaid eligibility (because states choosing not to would have risked forfeiting their federal matching funds). 

Under the ACA, certain individuals and families are eligible to receive federal subsidies to purchase health insurance through exchanges.  One might initially assume that, as a result of the Court’s decision (and the subsequent decision of states not to expand their Medicaid programs), that those ineligible for Medicaid or CHIP would migrate to the exchanges, resulting in more subsidies at an equal (or even greater) cost to the government.  The Insurance Coverage Report explains, however, that such an assumption would be incorrect.  In fact, many of those not eligible for Medicaid coverage also will not be eligible to participate in the exchanges, and the number of additional people participating in the exchanges after the Court’s decision is projected to be approximately half the number who will not qualify for Medicaid coverage.  Consequently, even though the government’s average cost per individual participating in the ACA’s insurance exchanges is higher than its average savings per individual not enrolled in Medicaid, CBO believes that the savings attributable to lower Medicaid enrollment will more than offset the increased costs of providing subsidies to those who purchase insurance in the exchanges, thus resulting in lower projected costs.  (CBO points out, however, that its revised projections take into account the law’s insurance coverage provisions only, and do not consider other provisions, which are projected to reduce budget deficits.)

In the H.R. 6079 Report, CBO estimates that repeal of the ACA would result in a net increase in federal budget deficits during the period between 2013 and 2022.  This estimate is based on the assumption that H.R. 6079 is enacted near the beginning of fiscal year 2013.  Specifically, CBO predicts that enactment of H.R. 6079 would result in the following budgetary impacts during the first decade:

• An estimated savings of $1.171 trillion due to repeal of the ACA’s provisions expanding health insurance coverage through increased Medicaid and CHIP outlays and the payment of insurance exchange subsidies.
• An increase in spending by an estimated $711 billion due to repeal of the ACA’s cost-cutting provisions.
• A reduction in revenues by an estimated $569 billion due to repeal of certain revenue-generating provisions, such as the increase in the Hospital Insurance payroll tax and the imposition of fees or excise taxes on certain manufacturers and insurers.
•  A total increase of $109 billion to federal budget deficits.

Click here to view CBO’s Insurance Coverage Report, and here to view its H.R. 6079 Report.

Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.