Congressional Budget Office
Analysis of the Administrationfs Announced Delay of Certain Requirements Under the Affordable Care Act
report
July 30, 2013
Letter to Congressman Ryan and others
CBO and the staff of the Joint Committee on Taxation (JCT) have assessed the
effect of the recently announced one-year delay in the imposition of penalties
for certain large employers and the corresponding delay in the implementation of
two reporting requirements for certain large employers and health insurance
coverage providers under the Affordable Care Act (ACA). This letter describes
the changes CBO has made in its current-law projections to reflect those actions
and recently issued final regulations.
What the Administration Announced
Under the ACA, certain large employers that do not offer health insurance
coverage that meets the affordability standard defined in that law will be
subject to penalties. In addition, insurers and certain other health coverage
providers (primarily employers that self-insure) will be required to report the
names of those receiving coverage, and certain large employers will be required
to report on the health insurance coverage offered to their full-time employees.
On July 2, 2013, the Administration announced its decision to delay for one year
the penalties for certain large employers that do not provide affordable
coverage, as well as to delay reporting requirements for insurers and
employers.
In addition, the Administration recently released final regulations
specifying the procedures to be used to ascertain and verify whether people
applying for tax credits for premiums on insurance provided through the
exchanges have an affordable offer of coverage from their employer and what
their income is. Under the ACA, applicants for premium tax credits will be
required to provide information in their application about any coverage by their
employer for which they are eligible. The exchanges will check available
databases to verify that information, but, for many applicants, no supporting
information will be available. In those cases, exchanges will be required to
contact employers to verify the information for a statistically valid sample of
applicants; some of the exchanges operated by states had planned to rely on the
Department of Health and Human Services (HHS) to perform that follow-up
verification. However, the final regulations indicate that HHS will not conduct
follow-up verification on behalf of state-based exchanges until January 1, 2015,
one year later than expected. As a result, in 2014 only, if an applicantfs
attestation cannot be verified through available databases, state-based
exchanges will have the option to accept the attestation as final without
conducting further verification. However, that option applies to state-based
exchanges only; HHS indicated in the final rule that federally facilitated
exchanges will pursue follow-up verification for a statistically valid sample of
applicants in 2014, as expected.
Also, under the ACA, applicants for premium tax credits will be required to
provide information about their householdfs income, to be verified through
electronic sources of information about peoplefs income, such as tax returns and
Social Security Administration records. If the income reported by an applicant
is significantly less than the amount of his or her income indicated by other
available data or if data to verify a householdfs income are not available, then
the exchange will request supporting documentation from the applicant. For 2014
only, the final rule allows exchanges to request additional documentation either
from such applicants or from a statistically valid sample of those applicants.
For an applicant that is not contacted by exchanges to provide further
documentation, advance payments of premium tax credits will be based on the
applicantfs attestation. However, the law also provides that if an individualfs
advance payments exceed the amount of the premium tax credits to which he or she
is entitled on the basis of his or her actual year-end tax return, that person
may be required to repay some or all of the credits, subject to certain limits
based on income.
How CBO and JCT Updated Their Estimates
Following its usual procedures for incorporating new information in its
estimates, CBO now assumes that penalties on employers and certain reporting
requirements will not be enforced in 2014. In its May 2013 baseline projections,
CBO projected that the insurance coverage provisions of the Affordable Care Act
would have a net cost to the federal government of $1,363 billion over the
10-year period from 2014 to 2023. (The ACA includes many other provisions that,
on net, will reduce federal budget deficits. Taking the coverage provisions and
other provisions together, CBO and JCT estimated that the ACA will reduce
deficits over the next decade.) As a result of the Administrationfs announcement
and recently issued final rules, the net cost is now estimated to be $1,375
billion—$12 billion more than previously estimated. The largest change is a $10
billion reduction in penalty payments by employers that would have been
collected in 2015. (Penalties assessed for 2014 would have been collected in
2015.) Costs for exchange subsidies are expected to increase by $3 billion.
Other small changes, including an increase in taxable compensation resulting
from fewer people enrolling in employment-based coverage, will offset those
increases by about $1 billion, CBO and JCT estimate.
The budgetary effects other than the loss of revenues from penalty payments
stem primarily from changes in how many people will obtain insurance coverage
and from what source. CBO and JCT expect that some large employers that would
have offered health insurance coverage to their employees in 2014 will no longer
do so as a result of the one-year delay of penalties for those that do not offer
affordable coverage. However, most large employers currently offer health
insurance coverage to their employees, and because the delay is only for one
year, CBO and JCT expect that few employers will change their decisions about
offering such coverage.
Further, as a result of the temporarily looser procedures for verifying
offers of employment-based coverage, CBO and JCT expect that some additional
workers with affordable offers from their employer will obtain subsidized
coverage through exchanges in 2014. However, applicants for subsidies will still
have to provide exchanges with information about how to contact their employer
and will have to sign a statement indicating that their answers are accurate to
the best of their knowledge; moreover, employers will be notified of employees
who qualify for premium tax credits. Consequently, although CBO and JCT expect
that the verification process will have significant effects on peoplefs behavior
in coming years, the temporary loosening of verification procedures in 2014 is
estimated to have only a small effect.
CBO and JCT also anticipate that the change in procedures for verifying
income will have only a slight impact on the number of enrollees in the
exchanges and on the accuracy of their income reporting because the Internal
Revenue Service will be able to identify misreporting when it compares reported
income with tax returns at year-end.
In addition, CBO and JCT expect that the delay in implementing reporting
requirements will have only a negligible effect on sources of insurance coverage
and on revenues collected through the penalties for individuals who do not
obtain coverage in 2014. Although CBO and JCT expect that the reporting
requirements will have significant effects on peoplefs behavior in coming years,
the projected effects on coverage and revenues from penalties for 2014 (which
will be collected in 2015) are already lower than the projected collections in
subsequent years to allow for initial difficulties in implementing those
provisions of the law. Moreover, the Administration has said that it will
encourage insurers and self-insured employers to voluntarily comply with the
reporting requirements and report the names of those covered to the
Treasury.
All told, as a result of the announced changes and new final rules, roughly 1
million fewer people are expected to be enrolled in employment-based coverage in
2014 than the number projected in CBOfs May 2013 baseline, primarily because of
the one-year delay in penalties on employers. Of those who would otherwise have
obtained employment-based coverage, roughly half will be uninsured and the
others will obtain coverage through the exchanges or will enroll in Medicaid or
the Childrenfs Health Insurance Program, CBO and JCT estimate. In particular,
fewer than half a million additional people are expected to be uninsured in 2014
than the number projected in the May baseline.