Benefits and Compensation

CBO: $194 Billion Deficit Increase If Key ACA Subsidies End In 2017

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.ACA

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.

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

Ending those payments would also increase the federal deficit, on net, by $194 billion from 2017 through 2026, “[M]ostly because that change would result in increased costs for premium assistance tax credits,” conclude the CBO and JCT. “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:

  • The number of people living in areas with no insurers offering nongroup plans would be greater during the next 2 years and about the same starting in 2020;
  • Gross premiums for silver plans offered through the marketplaces would be 20% higher in 2018 and 25% 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 2 years; and
  • 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 is made later than the end of August 2017 to terminate the CSR payments at the end of the calendar year—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.

JenJennifer Carsen, JD,is a Senior Legal Editor for BLR’s human resources and employment law publications, focusing on benefits compliance. In the past, she served as the managing editor of California Employer Resources (CER), BLR’s California-specific division, overseeing the content of CER’s print and online publications and coordinating live events and webinars for both BLR and CER.

Before joining CER in 2005, Ms. Carsen was a Legal Editor at CCH, Inc. and practiced in the Labor & Employment Department at Sidley & Austin, LLP in Chicago. She received her law degree from the New York University School of Law and her B.A. from Williams College. She is a member of the New Hampshire Bar Association.

Questions? Comments? Contact Jen at jcarsen@blr.com for more information on this topic.