CBO updates ACA cost projections

Over the next 10 years, the Affordable Care Act will cost $1.34 trillion, according to the Congressional Budget Office, up 11% from projections a year ago, mostly because of higher-than-expected enrollment in Medicaid. The law gave 22 million people access to coverage they otherwise would not have had, the report found, and the cost of providing that coverage from 2016 to 2019 will be $465 billion, 25% less than projected when the law was passed. The New York Times (free-article access for SmartBrief readers) (3/24), San Francisco Chronicle (free content)/The Associated Press (3/24)

An Argument Against the Cadillac Tax

The Cadillac tax on overly generous health insurance plans seemed fairly reasonable at the time the ACA was enacted, writes Dana Beezley-Smith, Ph.D., in the fall issue of the Journal of American Physicians and Surgeons. A 40% excise tax on insurance plans valued above a dollar threshold, the Cadillac tax takes effect in 2018. Although assessed against insurers, it will be passed along to employers through higher premium costs. The tax will eventually target even the skimpiest policies because the threshold is indexed to ordinary inflation rather than to the higher rate of increase in healthcare costs.

The Congressional Budget Office (CBO) projected that the tax would reap $201 billion from 2013 to 2109, and that receipts would grow by roughly 10% to 15% per year in the following decade. Remarkably, very little of this revenue was expected to result from direct taxation of insurance plans. Companies were expected to devalue or drop coverage to avoid the tax. Instead, most receipts were thought to accrue from payroll and income taxation of worker pay raises. This is how the tax was portrayed as a boon to workers, rather than a financial burden. Beezley-Smith says that there is little evidence to support this theory. Workers might pay for benefits in decreased wages, but cutting benefits does not necessarily result in pay raises.

HHS considers 2015 ACA enrollment target

HHS is still analyzing 2014 health insurance enrollment figures and has not set an enrollment target for 2015, though the Congressional Budget Office has estimated that 13 million people will enroll in a plan through a publicly run exchange, and California aims for 1.7 million enrollees. The department is testing the federal exchange, more plans are being offered through the exchanges and premiums are expected to remain relatively stable. The Washington Post (tiered subscription model)/Wonkblog (10/9)

Nearly Half of Employers Will Hit the Cadillac Tax in 2018


Despite efforts to rein in health care costs, roughly half of large U.S. employers will face the excise tax in 2018; and the percentage is expected to rise significantly in subsequent years, according to an analysis by Towers Watson. The Congressional Budget Office  expects a $79 billion excise tax burden from 2018 to 2023.

As part of the Affordable Care Act (ACA), the excise or Cadillac tax is a 40% tax on the value of all affected health care programs a participant elects that exceed certain dollar thresholds in 2018 and beyond. This non-deductible excise tax must be paid by the employer although some employers are considering shifting the costs to plan participants. Seventy-three percent of employers are concerned about triggering the tax, and 62% say it will have at least a moderate effect on their health care strategy in 2015 and 2016. The survey revealed that 48% are likely to trigger the tax in 2018; and 82% could cross the threshold by 2023.

Trevis Parson, chief health actuary for Towers Watson said, “Even with conservative projections, the impact of the excise tax on employers is substantial, yet it is often not fully understood. Each company will need to look at the tax carefully based on its own programs, and we expect a great deal of variation by industry.”

Randall Abbott, a senior health strategist at Towers Watson said, “Even a Chevy may be affected by the Cadillac Tax. For most employers, the excise tax will be a question of when, not if, unless action is taken. The ACA has put a timer on cost management for many employers and unless one cuts benefits or improves program performance there’s a real risk of triggering it.” Abbott says that these three key factors are not well known about the tax:
1. The excise tax is based on employer and employee premium contributions, not just what the employer pays for coverage.
2. The definition of what’s included for calculating the tax extends to tax-advantaged health care accounts, such as health flexible spending accounts, health reimbursement accounts, and pretax contributions to a health savings account.
3. The tax is not determined by the value of the medical plan, but rather the value of all affected health benefits elected by an employee or family. The tax is based on the aggregate value of the programs an employee elects, not just the medical plan value itself.

Annual increases in excise tax thresholds are not based on health care cost inflation, but on the Consumer Price Index, which was 1.5% for 2013. That is far less than medical cost trend and considerably less than the 4% annual health care cost increases that better performing employer health plans are expected to achieve after plan changes in 2015 .

Abbott said, “With so much at stake, it is critical that companies take a close…look at their health programs and understand their projected costs…It also highlights the need for companies to improve their health program performance…The good news is that many have already taken steps, and with proper plan management, the impact of the tax can be significantly mitigated. In fact, Towers Watson estimates that the number of companies expected to trigger the tax would be considerably higher if not for the variety of actions that employers have already taken or are likely to take as they better understand the challenge. “For more information, visit www.towerswatson.com.

ACA to Cost Government Less Than Expected

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that the Affordable Care Act (ACA) will result in lower than expected net costs to the federal government. In July 2012, CBO and JCT estimated that the ACA’s effect would be to reduce federal deficits. The agencies now project a net cost of $36 billion for 2014, which is $5 billion less than the previous projection for the year; and $1,383 billion for the 2015 to 2024 period, which is $104 billion less than the previous projection.

The estimated net costs for 2014 stem almost entirely from spending for subsidies that are to be provided through insurance exchanges and from an increase in Medicaid spending. The following are projected net costs for the 2015 to 2024 period:
• Gross costs of $1,839 billion for subsidies and related spending for insurance through the exchanges, Medicaid, the Children’s Health Insurance Program (CHIP), and tax credits its for small employers.
• A partial offset of $456 billion in receipts from penalty payments, additional revenues resulting from the excise tax on high-premium insurance plans, and the effects on income and payroll tax revenues and associated outlays arising from projected changes in employer coverage.

Those estimates only address the insurance coverage provisions of the ACA, which do not generate all of the act’s budgetary effects. Many other provisions are expected to reduce budget deficits. For more information, visit www.cbo.gov.

Obamacare May Cause Employees to Work Less

The Affordable Care Act could reduce the labor force by 2.5 million workers in 2024, according to the non-partisan Congressional Budget Office’s annual outlook. More people are likely to reduce their hours or leave the workforce in order to stay under the income caps for Medicaid and federal subsidies. President Obama gave the following remarks in response to the report:

Since the Affordable Care Act passed into law in March 2010 the private sector has added 8.1 million jobs. That is the strongest 45-month job growth since the late 1990s and contrasts with the 3.8 million private sector jobs lost in the decade before the Affordable Care Act passed.

Claims that the Affordable Care Act hurts jobs are simply belied by the facts in the CBO report. CBO’s findings are not driven by an assumption that ACA will lead employers to eliminate jobs or reduce hours, in fact, the report itself says that there is no compelling evidence that part-time employment has increased as a result of the ACA.

While many factors affect job growth, the actual performance of businesses refutes those who predicted that the Affordable Care Act would dramatically hurt the economy.

What the CBO report does find is one key immediate effect of the Affordable Care Act is to induce some employers to hire more workers or to increase the hours of employees during the 2014 to 2016 period. Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families. At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams. This CBO report bears that out, and the Republican plan to repeal the ACA would strip those hard-working Americans of that opportunity.

In addition, the CBO itself confirms that this analysis of the implications of the ACA on the labor force is incomplete, does not take into account the impact that ACA’s slowing health care cost growth which experts have estimated that slower growth in health costs due to the ACA will cause the economy to add an additional 250,000 to 400,000 jobs per year by the end of the decade. Moreover, CBO does not take into account positive impacts on worker productivity due to the ACA’s role in improving workers’ health, including reduced absenteeism. Finally, as it has since the enactment of the ACA, CBO continues to confirm that the ACA is projected to reduce the deficit by more than $1 trillion over the next two decades.

Delaying the Individual Mandate Would Reduce the Deficit

A House bill to delay Obamacare’s individual mandate would save $35 billion dollars, according to the Congressional Office. In July, the House passed H.R. 2668, which would delay the application of the individual health insurance mandate and the employer health insurance mandate for one year. The Congressional Budget Office (CBO) and the Joint Committee on Taxation estimate that enacting H.R. 2668 would reduce federal deficits by roughly $36 billion from 2014 to 2018 and by roughly $35 billion from 2014 to 2023. For more information, visit http://www.cbo.gov/publication/44551

Employer-Sponsored Family Health Premiums Rise 4%

Annual premiums for employer-sponsored family health coverage reached $16,351 this year, up 4% from last year, with workers paying an average of $4,565 toward the cost of coverage, according to a survey by the Kaiser Family Foundation/Health Research & Educational Trust (HRET). During the same period, wages were up 1.8% and general inflation was up 1.1%.

Kaiser president and CEO Drew Altman, Ph.D., said, “This year’s rise in premiums remains moderate by historical standards. Since 2003, premiums have increased 80%, nearly three times as fast as wages (31%) and inflation (27%). We are in a prolonged period of moderation in premiums, which should create some breathing room for the private sector to try to reduce costs without cutting back benefits for workers.”

The survey reveals that firms with many lower-wage workers (at least 35% earning $23,000 or less annually) require workers to pay an average of $1,363 more toward family premiums than workers at firms with fewer lower-wage workers ($5,818 versus $4,455 annually). The lower-wage firms offer less costly coverage too, creating a large disparity in the share of the premium that their workers pay (39% versus 29%).

This year, 78% of all covered workers face a general annual deductible, up from 72% in 2012. Workers usually pay this deductible before most services are covered by their health plan. The average deductible for worker-only coverage is $1,135, similar to the $1,097 average deductible in 2012.

Thirty-eight percent of covered workers have a deductible of at least $1,000 or more. At small firms, 58% of covered workers have deductibles of at least $1,000, including 31% who face deductibles of at least $2,000, which is up from 12% in 2008.

In 2013, 35% of employers say wellness plans are very effective for controlling costs compared to 22% who say that disease management programs are very effective, 20% who say that consumer-driven health plans are very effective and 17% who say that cost sharing is very effective.

Nearly all large employers (at least 200 workers) offer at least one wellness program, which can take many forms and target a wide range of conditions. Thirty-six percent of large employers who offer wellness programs offer a financial incentive for workers to participate, such as lower premiums or a lower deductible, a larger employer contribution to a tax-preferred savings account, gift cards, and cash or other direct financial incentives.

Fifty-five percent of large firms that offer health benefits offer biometric screenings. And 11% of them reward or penalize workers financially based on whether they achieve biometric outcomes.

The Affordable Care Act (ACA) includes provisions that allow broader use of financial incentives to encourage workers to improve their health. Gary Claxton, director of the Foundation’s Health Care Marketplace Project said, “This will be an important issue to watch next year, as employers will have more flexibility and could ask workers to pay more because of their lifestyles and health conditions.”

Thirty-six percent of covered workers are in grandfathered plans, down from 48% last year. The shift means that more will benefit from reforms, such as coverage of preventive benefits without cost sharing and an external appeals process. The slow growth in premiums also means that fewer employer plans will be subject to the ACA’s high-cost plan tax that takes effect in 2018. The Congressional Budget Office recently reduced its estimate of the number of plans that would trigger the tax, and a continued low growth rate could further reduce the affect of this provision.

Twenty-nine percent of employers with at least 5,000 workers are considering a private exchange. These larger firms employ almost 40% of all covered workers, so their interest could indicate a significant shift in the way many people get their health insurance.

This year, 57% of firms offer health benefits to their workers, which is statistically unchanged from the 61% in 2012 and 60% in 2011. As in the past, the larger an employer is, the more likely it is to offer health benefits. Nearly all firms with at least 200 workers offer health benefits to at least some of their workers. Twenty-three percent of firms with many low-wage workers offer health insurance compared to 60% of firms with few low-wage workers.

Since most firms in the country are small, variation in the offer rate is due primarily to changes in the percentages of the smallest firms (three to nine workers) offering health benefits (45% in 2013, similar to the 50% which did so in 2012).  For more information, visit http://kff.org/EHBS.

Medicare Advantage Enrollment Continues to Grow

The Affordable Care Act (ACA) reduced federal payments to Medicare Advantage plans to bring them more in line with payments under traditional Medicare. Despite predictions that enrollment would drop, enrollment in Medicare Advantage plans has actually climbed from 11.1 million in 2010 to 14.4 million in 2013 – a 30% increase, according to a report by the Kaiser Family Foundation.

Enrollment continues to grow across counties and high and low payment quartiles,  which suggests that the market offers enough choice to attract enrollees even if some plans become less competitive under the ACA. However, the analysis did not examine cost sharing or benefits, and it is unclear how much the plans have changed cost sharing or extra benefits since 2012.

The Congressional Budget Office expects enrollment to continue to increase in 2015 and future years. But, the CMS Office of the Actuary expects enrollment to decrease after 2014.

Since payment reductions have not yet been fully phased in, it remains to be seen how companies will respond. Also, quality-based bonus payments have partly offset the payment reductions. There could be some shakeout in the market, over the next few years, as payment reductions are implemented and benchmarks move closer to  for traditional Medicare spending. To remain viable, some plans will have to become more efficient or modify the extra benefits they provide. HMOs seem to have an advantage over other model types. For more information, visit www.kff.org.

Pelosi Addresses ACA

House Minority Leader Nancy Pelosi, D-Calif., held her weekly press conference in the Capitol Visitor Center. Below is a summary of her comments related to the Affordable Care Act:

The nonpartisan Congressional Budget Office told Speaker Boehner that repealing the Affordable Care Act would increase the deficit by $109 billion over the next 10 years – $109 billion. Not only is this a vote that jeopardizes access to affordable quality healthcare, it is a vote that explodes the deficit. One hundred and five million Americans are already receiving free preventive services. More than 100 million Americans no longer face a lifetime limit on their health coverage. Seventeen million children with preexisting conditions are no longer denied coverage. Soon being a woman will not be considered a preexisting medical condition. As you see, these are already in effect — we have preventive services, coverage for young adults and children. As you know, many more provisions are there. Six point six million young adults up to the age of 26 have taken advantage of the law to obtain health insurance through their parents’ insurance policies; 6.3 million seniors in the donut hole have saved $6.1 billion on the prescription drugs.

Q: What is your reaction to Secretary Sebelius asking the health insurance industry for funds to implement the healthcare law? And also, have you ever asked anyone to contribute to a 501(c)(4)?

A: Leader Pelosi. When the Republicans passed the Medicare prescription drug bill in the beginning of president Bush’s term, they spent a fortune of public dollars promoting it…That was their responsibility to get people to sign up. That is the responsibility now. So, I think that that initiative is one that they – who should they be to criticize something they did to the hilt?

Secondly, when we were passing the Affordable Care Act, there were hundreds of millions of dollars spent during the debate misrepresenting, mischaracterizing – I don’t like to use this word – lying about what was in or not in the Affordable Care Act. It was going to be death panels, it was going to be abortion, it was going to be this, that, and the other thing – none of which was true. But, nonetheless, whether it was true or not, hundreds of millions of dollars spent by the private sector for this purpose.

Last Updated 05/25/2022

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