CBO Reaffirms That Health Reform Will Reduce the Deficit

The Congressional Budget Office (CBO) issued its third complete estimate today of the effects of the health reform law (the Affordable Care Act, or ACA).  As with its two prior estimates, in March 2010 and February 2011, CBO again estimated that health reform will reduce the deficit — modestly over its first ten years and by an amount equal to about one-half of one percent of gross domestic product over its second decade.

CBO estimates that repealing health reform, as the House voted two weeks ago, would:

• Increase the federal deficit by $109 billion over the 2013-2022 period and
• Cause 30 million people to lose health insurance coverage.

CBO and the Joint Committee on Taxation have also updated their estimates of health reform to reflect the recent Supreme Court decision.  Some observers contended that the decision would substantially increase the cost of health reform.  As we predicted, however, CBO finds that the court’s decision will leave more people without health insurance and reduce the cost of the legislation.

The court’s decision, as my colleague Judy Solomon has explained, essentially means that states can decide whether or not to expand their Medicaid programs to cover adults with incomes up to 138 percent of the federal poverty level.  To the extent that states decide not to implement the expansion, there will be offsetting effects on the federal budget:

• 6 million fewer people will have Medicaid coverage in 2022, CBO estimates.  As a result, the federal government will spend $289 billion less for Medicaid and the Children’s Health Insurance Program over the 2012-2022 period.
• 3 million of these people will obtain coverage through the new health insurance exchanges, increasing the cost of exchange subsidies by $210 billion.
• 3 million more people will be uninsured.  Individuals and employers will pay $5 billion more in penalties for failing to obtain or provide coverage.

On balance, CBO estimates that the court’s decision has reduced the ACA’s ten-year cost by $84 billion.

CBO’s new estimate, of course, is just that — an estimate.  As we have noted, the Medicaid expansion is a good deal for states and for their uninsured residents.  The ACA provides 100 percent federal funding for the expansion for its first three years, phasing down to 90 percent federal funding after that.  And the expansion, by greatly reducing the number of uninsured, will enable states and localities to save substantial sums on uncompensated care for the uninsured.

We hope that as states understand these benefits, most will decide to implement the Medicaid expansion, and that the court’s decision will prove to have less of an impact than CBO now estimates.