Medicaid Opportunities & Challenges Task Force

June 26, 2013

Jeff Bechtel, Senior Consultant

Summary of Congressional Budget Office Reports and Analysis – Cost of ACA

• High Level Overview – Recent CBO Analysis

• Key Components of Cost Analysis

• CBO Analysis of Repeal of the ACA

• Discussion

Presentation Outline

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• A recent CBO report (May 2013) estimates that the ACA will cost about $1.3 trillion over the next 10 years, up slightly from a previous estimate of $1.17 trillion.

• The new estimate includes fiscal year 2023 and the previous estimate -- which forecasted up to 2022 -- "remains essentially unchanged."

• Despite the cost of the ACA, CBO has estimated that the law will reduce the deficit because it has provisions that will raise enough revenue to offset its costs.

• For example, in 2012 CBO estimated that a GOP bill to repeal the ACA would increase the federal deficit by $109 billion over 10 years.

• Overall, according to the CBO, the budgetary effects of the ACA's coverage provisions "has changed little since February 2013 and indeed has changed little since the legislation was being considered in March 2010."

Recent CBO Analysis

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• CBO estimated that there will be 13 million new Medicaid beneficiaries by 2022.

• CBO projects that 24 million individuals will enroll in the ACA's health insurance exchanges by 2022.

• CBO estimates that seven million U.S. residents will lose their employer-sponsored health insurance because of the ACA.

• CBO estimates that individuals will pay $45 billion (for not complying with the law's individual mandate, largely because it expects more U.S. residents will have incomes low enough to be exempt from the individual mandate).

• More employers will pay penalties for failing to offer health coverage than was previously expected, for a total of $140 billion in revenues.

Key Findings – Cost of the ACA

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Estimated Changes in Insurance Coverage - 2023

Changes in Insurance Coverage in 2023 (Nonelderly people, by calendar year)

Medicaid and CHIP 13 million

Employment-Based - 7 million

Nongroup and Other - 5 million

Insurance Exchanges 24 million

Uninsured -25 million

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Estimated 10-Year Effects of ACA on Federal Deficit

10-Year Effects on the Federal Deficit, FY 2014-2023 (Billions)Medicaid and CHIP Outlays 710Exchange Subsidies and Related Spending 1,075Small-Employer Tax Credits 14 Gross Cost of Coverage Provisions 1,798

Penalty Payments by Uninsured Individuals -45 Penalty Payments by Employers -140Excise Tax on High-Premium Insurance Plans -80Other Effects on Tax Revenues and Outlays -171 Net Cost of Coverage Provisions 1,363

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• Small Employer Tax Credits: Provide small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees with a tax credit.

• Penalty Payments – Uninsured:

• Those without coverage pay a tax penalty.

• The penalty will be phased-in according to set schedule, and beginning in 2016 the penalty will be increased annually.

• Exemptions will be granted for prescribed circumstances (e.g. financial hardship, religious objections, American Indians, those without coverage for less than three months, etc.).

Key Concept Overview

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• Penalty Payments – Employers:

• Assess employers with 50 or more full-time employees that do not offer coverage. Assessment varies based on circumstances – approximately $2,000 per employee.

• Employers with less than 50 full-time employees exempt from penalties.

• Excise Task on High-Cost Plans:

• The ACA includes an excise tax on high cost health plans that will go into effect in 2018 (sometimes called the "Cadillac tax").

• No worker will pay the tax directly; if owed, the tax will be paid by health insurance companies or health plan sponsors.

• In addition to generating revenue to finance health reform, this tax sets an expectation for health plans to rein in costs.

Key Concept Overview (cont’d)

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• Analysis performed in 2012 to evaluate the economic impact of repealing the ACA.

• CBO and JCT estimate that, on balance, the direct spending and revenue effects of enacting legislation that repeals the ACA would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period.

• Deficits would be increased if the law was repealed because the net savings from eliminating the insurance coverage provisions would be more than offset by the combination of other spending increases and revenue reductions.

Analysis Summary - Repeal of ACA

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• Eliminated Costs

• Repeal would eliminate exchange subsidies, increased outlays for Medicaid, and tax credits for certain small employers.

• Costs are partially offset by penalty payments from employers and uninsured individuals, and revenues from the excise tax on high-premium insurance plans.

• Spending Increases and Elimination of New Revenues

• Repeal would remove provisions that are estimated to reduce net federal outlays (primarily for Medicare).

• Repeal would eliminate Hospital Insurance payroll tax and the extension to net investment income for high-income taxpayers.

• Repeal would eliminate fees or excise taxes on certain manufacturers and insurers.

Analysis Summary (cont’d)

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Discussion

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Questions?

Sellers Dorseysellersdorsey.com

Jeff BechtelSenior ConsultantSellers Dorsey717.695.4342jbechtel@sellersdorsey.com

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