HR Management & Compliance

CBO: $194 billion deficit increase if key ACA subsidies end in 2017

ACA snipby Jennifer Carson

The Affordable Care Act (ACA) requires insurers to offer plans with reduced deductibles, copayments, and other means of cost-sharing to certain people, depending on their income, who purchase plans through the ACA marketplaces. In turn, insurers receive federal payments arranged by the Secretary of Health and Human Services to cover the costs they incur because of that requirement.

The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have estimated the effects of terminating those payments for cost-sharing reductions (CSRs). In particular, the agencies analyzed what would happen if it were decided by the end of August 2017 that CSR payments would continue only through the end of this calendar year.

The CBO and JCT predict that if payments for cost-sharing reductions stopped after the end of this year, participating insurers would raise premiums to cover the costs.

According to the CBO and JCT, ending those payments would also increase the federal deficit by $194 billion from 2017 through 2026, “mostly because that change would result in increased costs for premium assistance tax credits. . . . The number of people uninsured would be slightly higher in 2018 but slightly lower starting in 2020.”

If these subsidies terminate at the end of the calendar year, the CBO and JCT additionally predict that:

  • The number of people living in areas with no insurers offering nongroup plans would be greater during the next two years and about the same starting in 2020.
  • Gross premiums for silver plans offered through the marketplaces would be 20 percent higher in 2018 and 25 percent higher by 2020—boosting the amount of premium tax credits according to the statutory formula.
  • Most people would pay net premiums (after accounting for premium tax credits) for nongroup insurance throughout the next decade that were similar to or less than what they would pay otherwise—although the share of people facing slight increases would be higher during the next two years.
  • Federal deficits would increase by $6 billion in 2018, $21 billion in 2020, and $26 billion in 2026.

“Those effects are uncertain and would depend on how the policy was implemented,” caution the CBO and JCT.

The report notes that if a decision to terminate the CSR payments at the end of the calendar year is made later than the end of August 2017—after insurers have finalized premiums for next year—the “CBO and JCT expect that additional insurers would exit the marketplaces in 2018 to reduce their financial losses.”

More information is available in the full CBO report.

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