Obamacare’s Projected Cost Falls Due to Lower Premiums Under Health Care Law, CBO Says

The estimated cost of President Obama’s signature health care law is continuing to fall.

The Congressional Budget Office announced on Monday that the Affordable Care Act will cost $142 billion, or 11 percent, less over the next 10 years, compared to what the agency had projected in January.

The nonpartisan agency said the Affordable Care Act will cost less for two essential reasons. The first, and most significant, is that health insurance premiums are rising more slowly, and thus requires less of a government subsidy.

In addition, slightly fewer people are now expected to sign up for Medicaid and for subsidized insurance under the law’s marketplaces. That’s because the agency now says that more people than anticipated already had health insurance before the law took effect, and fewer companies than anticipated are canceling coverage. All in all, three million fewer people are expected to sign up for Affordable Care Act provisions by 2025.

Still, by 2025, the CBO estimates “the total number of people who will be uninsured … is now expected to be smaller than previously projected,” because more will have had health insurance to begin with.

All around, it’s positive news for Obama’s law, which has been accused by Republicans of killing jobs and draining federal coffers. Indeed, the CBO itself warned last year the health care law could reduce full time employment as some chose to give up work that provided health care as they relied instead on the government’s subsidies.

The administration’s own poor handling of the ACA’s online launch in the fall of 2013, combined with other errors, also have tarnished the law’s image among many Americans. And to be sure, the law is still expensive — expected to cost $1.2 trillion over 10 years.

But the cost of the law has been falling for several years, and now analysts are beginning to assess the evidence of the law’s impact from its first-full year of implementation.

In March 2010, the CBO predicted that the law would cost $710 billion during the period from 2015 to 2019, without trying to come up with projections beyond that. After several revisions, the law is now expected to cost $506 billion – 29 percent less — during those same five years, as shown in the chart.

CBO issued its new estimates less than a week after the Supreme Court heard a case challenging a crucial provision of the law. It’s unclear how the justices will rule, and a decision against the Obama administration could make these estimates irrelevant.

In revising their estimates, the agency noted two trends.

The first is the relatively modest increase in how much private insurance companies spend on their policyholders’ health care. Between 1998 and 2005, spending on health care increased by an average of 5 percent per year, adjusting for inflation and demographics. That figure fell to 1.8 percent per year for the period from 2006 to 2013, the latest year for which data are available.

The administration has said that this decline in spending on medical care is at least partly a result of cost-saving measures in the Affordable Care Act. Critics have argued on the contrary that the decline was due to the recession, and that health care costs could begin to rise again. Independent experts have suggested that much of the effect is due to the weak economy, but not all of it.

The CBO had previously expected that the pace of increasing spending would rise fast again, but now they predict that “such a bounce back seems less likely in light of the further slowing of spending growth observed in the most recent data.”

The agency also revised their estimates in response to new data on who was insured and how before the law took effect.

They concluded that fewer people were employed by firms that might stop offering coverage as a result of the law’s passage, since their employees are now able to buy coverage individually through the exchanges. And they realized that fewer people were uninsured to begin with than they had thought.

As a result, fewer people will need to purchase insurance through the exchanges or need federal help to do so.

The agency also concluded that the number of people who rely on Medicaid is smaller than they had anticipated, which is another source of savings.

These revisions mean that while fewer people will gain coverage as a result of Obamacare, the number of people who will still lack insurance despite the law’s passage is also lower than previously anticipated.

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