Katie Keith
May 29, 2018 - Health Affairs
On May 23, 2018, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released their annual baseline budget projections regarding coverage estimates and federal subsidies for health insurance over the next 10 years. The agencies expect the number of uninsured people to rise over the next decade. They estimate the impact of two recent proposed federal rules on association health plans (AHPs) and short-term plans, and they consider at least some short-term plans to be private health insurance coverage for purposes of their estimates.
CBO and JCT will use these projections as the benchmark for analyzing proposed legislation that affects insurance coverage and federal subsidies.
An estimated 244 million non-institutionalized residents of the United States under the age of 65 will have health insurance—defined by CBO and JCT as comprehensive major medical coverage—in any given month in 2018. This was the same estimate as in 2016 and 2017; 2016 was the first year in which the CBO and JCT began including employer coverage alongside public coverage in baseline estimates.
Of the 244 million insured people, about 58 percent (158 million people) will have coverage through an employer in 2018. This is expected to decline to about 55 percent (154 million people) by 2028. Much of this reduction will be due to the repeal of the individual mandate penalty beginning in 2019 as well as premiums that rise faster than wage growth.
In 2018, an additional quarter will be enrolled in Medicaid (61 million people) and CHIP (six million people, mostly children and pregnant women). By 2028, Medicaid enrollment is expected to grow to 64 million people; of these, 14 million people will be covered under the Affordable Care Act’s (ACA) Medicaid expansion. The CBO expects that some, but not all, states will additionally expand their Medicaid programs. So far, about 55 percent of those eligible for Medicaid under expansion criteria live in states that have expanded their Medicaid programs; CBO and JCT anticipate that this will increase to about two-thirds by 2028.
About 15 million people are expected to obtain ACA-compliant individual market coverage in 2018, either through the marketplace or directly from an insurer. Of these, about nine million people will purchase their coverage through the marketplace. This is lower than the 2017 estimate that 10 million people would purchase marketplace coverage. An additional one million people are expected to enroll in the Basic Health Program each year from 2018 to 2028. Currently, only two states—Minnesota and New York—have opted to develop a Basic Health Program.
Despite a reduction in estimated marketplace enrollment, overall enrollment in individual coverage is expected to remain between 12 and 13 million annually between 2019 and 2028. Of these, an estimated six to seven million will be eligible for marketplace subsidies.
Enrollment could be depressed by repeal of the individual mandate penalty and the expectation that more states will expand their Medicaid program. (Individuals eligible for Medicaid coverage are ineligible for marketplace subsidies.) On the other hand, enrollment could increase due to more generous tax credits (the result of silver loading) and the expansion of access to some short-term plans. (As discussed in more detail below, the CBO and JCT expect that some new short-term plans will satisfy their definition of health insurance coverage.) The agencies expect an additional two million more people to enroll in individual coverage in most years than would have if the federal government continued to fund cost-sharing reductions.
The CBO and JCT do not anticipate bare counties—those having no marketplace plans—for 2019 and note “steady demand” for marketplace coverage. The marketplaces are particularly stable in areas where most enrollees are eligible for subsidies and thus insulated from premium increases. They also note that insurers’ profitability increased in 2017 to reach near pre-ACA levels.
The new baseline incorporates the potential impact of recent federal proposed rules on AHPs and short-term, limited-duration insurance. As is standard practice, this baseline reflects a 50 percent chance that the final rules will be adopted as proposed and a 50 percent chance that the rules will not be issued at all.
Beginning in 2023—the date when the effects of these rules are expected to be fully phased in—an estimated six million additional people will enroll in either an AHP or a short-term plan. The CBO and JCT expect higher enrollment in AHPs (about 4 million people) than in short-term plans (about two million people).
Of the two million enrollees in short-term plans, a minority—fewer than 500,000—are expected to purchase non-major medical coverage. This is because the CBO and JCT estimate that at least some new short-term plans (unlike current short-term plans on the market) will qualify as private health insurance coverage, based on their definition.
CBO and JCT acknowledge that new short-term plans “would probably limit benefits, be priced on the basis of individuals’ health status, and impose lifetime and annual spending limits, and insurers could reject applicants on the basis of their health and any preexisting conditions.” Despite these limitations, they go on to state that “the majority of those plans would probably meet CBO’s definition of private health insurance because they would still provide financial protection against high-cost, low-probability medical events.”
This is a shift in the way that the CBO and JCT have applied the definition of private health insurance, at least since 2016. The CBO broadly defined private health insurance in December of that year as “a comprehensive major medical policy that, at a minimum, covers high-cost medical events and various services, including those provided by physicians and hospitals.” When there are specific legal requirements for private health insurance, the CBO will look to those requirements—such as large group requirements, the coverage of essential health benefits, and minimum actuarial value—to define coverage. There is no mention of short-term plans in CBO’s December 2016 analysis.
However, in a report released on May 15, 2018, the CBO includes an explicit reference to short-term plans. It notes that the definition of coverage “may include some short-term, limited-duration policies that provide comprehensive major medical coverage for a specified period and plans with very high deductibles.” The report goes on to note that the “desirability or adequacy” of this type of plan will vary based on consumer preference and income but does not affect the way that the CBO defines coverage.
Under this new interpretation, it appears that short-term plans with high deductibles and comprehensive benefits could be considered private health insurance coverage. However, the latest CBO report gives no explanation—other than a footnote citing consultation with industry experts—as to why it believes that some “new” short-term plans would meet this definition even though “current” short-term plans do not. The proposed rule does not include, for instance, new consumer protections that plans must meet that would somehow convert old short-term coverage into new comprehensive major medical short-term coverage.
Based on this assumption, the agencies estimate, the proposed rules would decrease the number of uninsured people by about one million in 2023 and each year thereafter. Most of these enrollees would have been previously uninsured. After 2023, however, most of those individuals purchasing AHPs and short-term plans would have been insured in the absence of the proposed rules. Because the individuals migrating to AHPs and short-term plans would be healthier than those enrolled in ACA coverage, premiums would be 2 to 3 percent higher in the ACA-compliant individual and small group markets.
The CBO and JCT acknowledge that their estimate is lower than the 6 percent premium increase projected by the chief actuary for the Centers for Medicare and Medicaid Services and higher than the administration’s own estimate in the proposed rule on short-term plans. They also note that AHPs and short-term plans may have smaller or larger effects on enrollment and premiums depending on how state insurance authorities regulate those plans.
About 11 percent (29 million people) will be uninsured in 2018. In 2019, an additional three million people will be uninsured. This projected increase to 32 million is due largely to repeal of the individual mandate penalty beginning in 2019, which will increase premiums in the individual market.
By 2028, the uninsured ranks are expected to grow to 35 million, or about 13 percent of the under-65 population. Over the next 10 years, subsidized enrollment will be lower by 3 million people and unsubsidized coverage will be lower by about two million people. In 2028, about 20 percent of the uninsured will be undocumented immigrants, about 10 percent will fall in the Medicaid coverage gap, and about 20 percent will be eligible for, but not enrolled in, Medicaid coverage. The remaining 50 percent will choose not to purchase insurance they qualify for.
Between nine and eight million people under the age of 65 will be covered through Medicare in 2018 and each year from 2019 through 2028. Other types of coverage, such as student health plans and the Indian Health Service, will cover an additional 5 to 6 million people each year.
In 2018, net federal health insurance subsidies—through the tax exclusion for employer-sponsored insurance, Medicaid, Medicare, CHIP, and ACA-compliant plans—will be $685 billion. This is equal to about 3.4 percent of gross domestic product (GDP). In 2028, this amount would reach $1.2 trillion or 3.9 percent of GDP. From 2019 to 2028, net subsidies are expected to be about $9.3 trillion, the bulk of which comes from the tax exclusion for employer-sponsored overage (about $3.7 trillion) and Medicaid and CHIP enrollment (about $4.0 trillion). Federal subsidies for employer-based insurance, which largely benefit higher-income Americans, are expected to cost almost as much as Medicaid over the next 10 years and far more than the subsidies for lower-income Americans through the marketplaces.
For over 60 years, employer-based coverage has been subsidized through income and payroll tax exclusions. There are also tax deductions for self-employed people and health insurance tax credits for qualifying small employers. Federal subsidies for employer coverage will cost $272 billion in 2018, growing to $489 billion by 2028. From 2019 to 2028, the exclusion for employer-based coverage will amount to about $3.7 trillion.
Federal spending for Medicaid and CHIP is expected to be about $4 trillion from 2019 to 2028. This includes about $842 billion for those made eligible for Medicaid under the ACA. Medicare benefits for those under 65, primarily for those living with a disability, will be about $82 billion in 2018 and $1 trillion from 2019 to 2028.
Subsidies for coverage in the nongroup market will be about $55 billion in 2018 and $760 billion from 2019 through 2028. This includes about $703 billion for premium tax credits and $57 billion for the Basic Health Program. These costs will be offset by $0.3 trillion in taxes and penalties under the individual and employer mandates, the Cadillac tax, and other ACA taxes and fees.
The 2018 average premium for a benchmark plan (not including tax credits) is about 34 percent higher than it was in 2017. This increase is due to 1) the loss of cost-sharing reduction payments, which made premiums about 10 percent higher in 2018; 2) limited marketplace competition; and 3) insurer uncertainty about whether the individual mandate would be enforced in 2018. Premiums for the lowest-cost bronze and gold plans grew less but still increased by 17 and 18 percent, respectively.
For 2019, the CBO and JCT expect a 15 percent increase in average benchmark plan premiums. This is due in large part to repeal of the individual mandate penalty, which will lead to a less healthy risk pool in the individual market. Because of this, premiums for 2019 are expected to be about 10 percent higher than they would have been if the individual mandate penalty had remained in place.
Over the long-term, benchmark plan premium growth is expected to be much more moderate—rising at an average of about 7 percent per year from 2019 to 2028. Silver loading will result in more rapid premium growth in silver plans, with slower premium growth in bronze but especially gold plans. As with previous estimates, the CBO and JCT will continue to incorporate cost-sharing reduction payments into previous baseline projections.
Coverage-related taxes and penalties are expected to reduce total federal subsidies by $21 billion in 2018. The Cadillac tax—an excise tax on high-premium employer plans—is expected to generate about $47 billion from 2019 to 2028. However, this assumes that the Cadillac tax, which has been long delayed and will not be imposed until 2022, will eventually go into effect. Over the next 10 years, the health insurance tax will result in $161 billion, and the employer mandate will result in $101 billion.
Relative to the CBO’s recently published budget and economic outlook, federal spending for subsidizing the marketplaces will be $4 billion lower in 2018 and $6 billion lower over the 2019 to 2028 period. Overall, the net federal subsidies for coverage will drop from $9.2 trillion to $8.8 trillion. Revenue raised by coverage is expected to be $1 billion higher in 2018 and $24 billion higher from 2019 to 2028, relative to previous estimates.
Many of the agencies’ projected changes resulted from new assumptions regarding eliminating the individual mandate penalty and coverage gains since 2012. Factors that influenced coverage gains include financial factors (such as premium tax credits and Medicaid expansion) as well as nonfinancial factors (such as simplified Medicaid enrollment procedures and outreach and enrollment efforts). Now that the individual mandate has been in place for five years, the CBO and JCT assumed that consumer attitudes are more settled with regard to nonfinancial factors associated with the mandate (such as the tendency to comply with the law and the expectation that most people should have health insurance). This “reduced the agencies’ estimates of the effects of eliminating the mandate penalty, which include eliminating the effects of the financial penalty and almost all of the nonfinancial effects of the individual mandate.”
The net cost of the federal subsidies is $50 billion lower in 2018 and $481 billion lower from 2018 to 2027. The reduction of about 5 percent resulted from a $389 billion decline in employment-related subsidies and a $202 billion decline in Medicaid and CHIP spending.
The CBO and JCT overestimated the number of people who would enroll through the marketplaces and receive subsidies in 2017. (In 2016, the agencies estimated that 12 million people would enroll in subsidized marketplace coverage compared to actual enrollment of around eight million people.) This overestimate was, however, offset by an approximately 10 percent underestimate of the average costs per subsidized enrollee.