Monday, March 28, 2016

Affordable Care Act: Costs of Expanding Coverage

The most notable success of the Patient Protection and Affordable Care Act of 2010 is that it has reduced the number of Americans without health insurance. There's no magic in how this has happened: it's just a matter of spending an extra $110 billion.  The Congressional Budget Office lays out the costs in its March 2016 report, "Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026."  CBO writes:

To separate the effects of the ACA’s [Affordable Care Act's] coverage provisions from those broader estimates, CBO and JCT [Joint Committee on Taxation] compared their current projections with estimates of what would have occurred if the ACA had never been enacted. In 2016, those provisions are estimated to reduce the number of uninsured people by 22 million and to result in a net cost to the federal government of $110 billion. ... Those estimates address only the insurance coverage provisions of the ACA, which do not generate all of the law’s budgetary effects. Many other provisions—such as various tax provisions that increase revenues and reductions in Medicare payments to hospitals, to other providers of care, and to private insurance plans delivering Medicare’s
benefits—are, on net, expected to reduce budget deficits.
Dividing the $110 billion in additional spending by 22 million more people with health insurance works out to about $5,000 per person. For comparison, although the comparison should be taken only as rough and not as apples-to-apples, Medicaid spending is about $5,800 per enrollee. There's never been any secret that if the US was willing to spend an extra $100 billion or more, it could subsidize health insurance for a lot more people. 

The CBO report offers an overview of health insurance coverage in the US, along with federal subsidies. Here's part of a figure from the report showing US health insurance coverage by categories. Most of those under-65 have employment-based coverage, but you can see the estimates for Medicaid and other programs.  The CBO prediction is that there will be 27-28 million Americans without health insurance through 2026. 

Here's part of a table from the CBO report showing federal subsidies for  health insurance coverage. The two main categories in which the Patient Protection and Affordable Care Act of 2010 raised subsidies for health insurance are $64 billion for expanding Medicaid coverage, and $43 billion in subsidies for those with lower income levels to purchase insurance  though the "marketplaces" (which seems to be the new name for what have often been called the "exchanges). 

A few comments: 

1) The reduction in the number of people without health insurance leads to one of those situations where you can see the glass as  half-full or half-empty. Some supporters of the 2010 legislation are emphasizing the reduction in the number of uninsured as a major success, which seems fair to me. However, if your expectation or your standard for comparison was that the 2010 law would come close to ending the issue of Americans without health insurance, it's disheartening that the law is apparently going to leave 27 million or so without health insurance. For the record, estimates of the effects of the law from the White House and from CBO back around 2010 all stated clearly that there would still be tens of millions without health insurance even after the law passed.

2)  Overall, I'm personally in favor of spending an extra $110 billion to provide health insurance coverage for 22 million more people. Sure, there's part of me that wonders if some of those people might have preferred getting health insurance that was more bare-bones and cheaper, and instead getting some of that $5,000 per person subsidy in the form of income that could have been spent in other ways. But that political choice wasn't available.

3) The main issue for me isn't the extra $110 billion in spending, but rather how that additional spending was designed and implemented, and how it interacts with the health insurance and health care markets as a whole. If the fundamental goal of the act was to spend and extra $110 billion and subsidize insurance for 22 million more Americans, the law could have been a lot simpler and less invasive.

4) In particular, it's worth noting that the cost of the tax exclusion for employer-provided health insurance--that is, the provision in the US tax code that the value of health insurance from your employer isn't counted as income on which tax is owed--was $266 billion in 2016. The CBO report forecasts that this tax exclusion will reduce tax revenues by $460 billion by 2026. At the risk of grievously oversimplifying a vast literature on how to control health care costs, I'll note that as long as employer-provided health insurance is an untaxed fringe benefit worth hundreds of billions of dollars, it really shouldn't be a big surprise that health care spending remains so high and rising. In addition, the fringe benefit is of course worth the most to those with higher income levels, who are more likely to have health insurance through their employers, more likely to have that health insurance be fairly generous, and more likely to be in higher income tax brackets. Finding a way to trim back the tax exclusion of employer-provided health insurance by about half--with an emphasis on reducing the subsidy to those with higher income levels--could provide the revenues to subsidize health insurance for all remaining Americans who continue to lack it.