April 14 - 18, 2014
The BreakPoint: CBO Issues New ACA Coverage Estimates
On April 14, the Congressional Budget Office (CBO) released updated estimates of the budgetary effects of the insurance coverage provisions of the Affordable Care Act (ACA). CBO, along with the Joint Committee on Taxation (JCT), now project that the ACA's coverage provisions will cost $1.383 trillion for the fiscal year (FY) 2015-2024 period, $104 billion less than the $1.487 trillion previously projected in their February 2014 estimate. The lower estimate primarily reflects a reduction in projected federal spending for subsidies and related spending for health plans available through the new ACA health insurance exchanges (exchange plans). CBO's reduced spending projection is based in part on its estimate that increases in exchange plan premiums for 2015-2024 will be less than previously expected.
In this BreakPoint, we review the main takeaways from CBO's latest ACA coverage estimates, including key changes from its previous February 2014 report.
Exchange Enrollment Projected to Rapidly Increase, Then Level Off
In the latest report, CBO maintains its previous estimate that 6 million individuals will have insurance coverage through the exchanges in 2014. Just yesterday (April 17), President Obama announced that approximately 8 million individuals had signed up for exchange plans. It is not surprising that CBO and the Administration differ in their estimates, given that CBO's estimate was also lower than the previous enrollment numbers reported by the Administration earlier this month. CBO's estimate, unlike the Administration's, is an average for 2014 that accounts for variations in exchange plan enrollment throughout the year—such as increases during special enrollment periods and drops in exchange plan coverage from individuals who later shift to Medicaid or employer plans. CBO's estimate also does not include individuals who fail to pay their initial plan premiums or lose coverage at any point in 2014 for not continuing premium payments. In contrast, the Administration's current enrollment numbers include both individuals who have paid their premiums and those who have not.
Both CBO's previous February 2014 and the latest April 2014 estimate predict that enrollment in exchange plans will increase substantially in 2015 and 2016, and then gradually increase and level off from 2017 to 2024. CBO's latest estimate though, projects a more rapid increase in enrollment in 2016 and 2017. CBO currently projects that enrollment in exchange plans will increase from 6 million in 2014 to:
• 13 million in 2015 (same as previous estimate);
• 24 million in 2016 (+2 million from previous estimate); and
• 25 million in 2017-2024 (+1 million from previous estimate in 2017, 2020, and 2022-2024).
CBO attributes the increase in projected enrollment for 2016 and 2017 to a variety of factors, including lower than expected exchange plan premiums and potentially less employer coverage for early retirees.
While enrollment in 2014 is an important factor for measuring the success of the ACA's exchanges, CBO's estimates suggest that the next few years will be important in assessing the long-term viability of the exchanges, as total enrollment is estimated to triple by 2017.
Lower Expected Premium Increases
CBO's April 2014 estimate of the effects of the ACA's insurance coverage provisions also included updated projections for exchange plan premiums. CBO and the JCT estimated that the national average annual premium for the second-lowest cost Silver plan for an individual—the benchmark for determining exchange subsidies – is approximately $3,800 in 2014. The national average is based on CBO and the JCT's projections of the age, sex, health status, and geographic makeup of enrollees in exchange plans.
The average benchmark premium is estimated to increase roughly three percent from $3,800 in 2014 to approximately $3,900 in 2015. From 2016 to 2024, CBO and the JCT project that the average benchmark premium will increase more rapidly, from approximately $4,400 in 2016 to $6,900 in 2024, or roughly 6 percent per year on average.
CBO last released premium estimates in November 2009. At that time, the average benchmark premium in 2016 was estimated to be $5,200. Notably, the recent estimate of the average benchmark premium in 2016 is approximately 15 percent lower than previously projected.
CBO notes that the primary reason for the lower projected exchange plan premiums is an updated assessment of exchange plan characteristics. Previously, CBO assumed that exchange plans would closely resemble employer plans in terms of benefits, cost sharing, provider networks and payments, and management of healthcare services. CBO's updated estimates reflect that exchange plans in 2014 "appear to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers' use of health care than employment-based plans." CBO however, expects exchange plans to more closely resemble employer plans in the coming years as enrollment increases, which is reflected in CBO's estimate of greater growth in the average benchmark premium after 2016.
In the short-term, if increases in exchange plan premiums are less than expected, enrollment in exchange plans may increase in line with CBO's revised estimates as more individuals may find coverage through the exchanges affordable.
Reduced Spending for Premium Subsidies
Although CBO and the JCT project higher upfront enrollment in exchange plans for 2016 and 2017, CBO and the JCT reduced their estimate of federal spending for subsidies and related spending compared to their previous projection in February 2014, primarily due to the lower-than-expected increases in exchange plan premiums. In the February 2014 estimate, CBO projected that the premium assistance tax credits would total $1.036 trillion over the FY 2015-2024 period. In the latest April 2014 estimate, CBO projects that the tax credits would total $855 billion over the FY 2015-2024 period, $181 billion (or roughly 17 percent) less than previously estimated.
The reduction in estimated federal spending for subsidies and related spending is the most significant factor behind CBO's shift in its cost estimates of the ACA's coverage provisions from $1.487 trillion in February 2014 to $1.383 trillion in April 2014, due primarily to its projection that exchange plan premiums will be lower than expected. These new projections are ostensibly good news for the Administration. However, whether exchange plan premiums actually increase at the lower than expected rates to support this reduction in overall costs remains to be seen, and will depend, in part on how well the assumptions on which insurers based 2014 premiums align with the costs of their actual risk pool.
The Past Week in Health Policy
Federal Rules and Regulations
● CMS issued a new set of FAQs answering questions concerning the risk corridor provision of the ACA.
Key Developments, News, and Research
Affordable Care Act
● The Administration announced that at least 8 million individuals have signed up for health insurance through state and federal exchanges, with 35 percent of enrollees under the age of 35.
● CBO released a report finding that ACA premiums will likely rise less than 3 percent next year. The agency also lowered its estimate of the ACA's overall 10-year cost by $104 billion (2015-2024) and predicted that the law will cost the federal government $5 billion less than expected in 2014.
● A new report by Young Invincibles found that healthy 18-34 year-olds are more likely to qualify to enroll in ACA exchanges outside the normal enrollment season due to their changing life circumstances.
● The special enrollment period for signing up for plans in federally-facilitated exchanges has officially ended, but people with changing life circumstances, such as marriage or job loss, may still have a chance to enroll throughout the year.
● A new Gallup poll finds that 4 percent of U.S. adults are newly insured in 2014, and about half of that group obtained coverage through the new insurance exchanges.
● An IMS study found that total spending on U.S. medications reached $329.2 billion in 2013, a 1 percent increase on a real per capita basis.
● A new study finds that the vapor from E-Cigarettes can cause cancer in human cells.
Next Week in Health Policy
April 21 - 25, 2014
Consumer Federation of America Conference: "37th Annual National Food Policy Conference"
Tuesday-Wednesday, April 22-23, 2014, 8:00 AM
Omni Shoreham Hotel
2500 Calvert Street NW, Washington, D.C.
Register onsite: Tuesday, 7:00 AM, Wednesday, 8:00 AM
Center for Strategic and International Studies' Global Health Policy Center Discussion: "Ethiopia's Investments in Family Planning: Lessons for U.S. Policy"
Wednesday April 23, 2014, 9:30 AM-12:00 PM
1616 Rhode Island Avenue NW, Washington, D.C.
There are currently no D.C. area healthcare-related hearings scheduled.
There are currently no D.C. area healthcare-related hearings scheduled.
Upcoming Key Deadlines
April 30, 2014: Special enrollment deadline to sign up for health plans via paper application in the ACA's federally-facilitated insurance exchanges to obtain coverage for plan year 2014.