Tuesday, July 24, 2012

CBO’s Assumptions about the Health Care Law

In its re-estimate of the health care law in light of the Supreme Court’s ruling and new cost estimate for repealing the legislation, the Congressional Budget Office made some interesting assumptions that are worth examining in greater detail.

First, CBO opined that “the Supreme Court’s decision upholding the constitutionality of the ACA’s provision requiring most individuals to obtain insurance coverage or pay a penalty tax does not change CBO and JCT’s assessment of the mandate’s effect on coverage.”  Some observers had argued that the Court’s ruling upholding the mandate as a tax rather than a penalty would undermine CBO’s behavioral assumptions – because the mandate can be easily circumvented by paying the tax, and individuals would not feel they were “breaking the law” by doing so.  CBO generally declined to change its assumptions regarding compliance with the mandate in light of the ruling, although it did allow that the Court’s decision will likely result “in an increase in the number of people who will be eligible for hardship exemptions [from the mandate], which will slightly reduce the prevalence of coverage and thus the strength of the social norm to obtain insurance.”

Second, CBO assumed that the law’s Medicaid maintenance of effort requirements “were not directly affected by the Court’s decision” and remain in place.  However, there is significant uncertainty and ambiguity about this assumption.  While the Administration believes the requirements were unaffected by the ruling, some states believe the Court’s decision nullified the maintenance of effort mandates, have said they will not be bound by those mandates, and are prepared to litigate their position accordingly should the Administration attempt to enforce requirements that states believe have been nullified by the Court.

Third, and perhaps most importantly, CBO assumed HHS would give states significant flexibility in determining how they will expand their Medicaid programs:

CBO anticipates that, instead of choosing to expand Medicaid eligibility fully to 138 percent of the FPL [federal poverty level] or to continue the status quo, many states will try to work out arrangements with the Department of Health and Human Services (HHS) to undertake partial expansions.  For example, some states will probably seek to implement a partial expansion of Medicaid eligibility to 100 percent of the FPL, because, under the ACA, people below that threshold will not be eligible for subsidies in the insurance exchanges while people above that threshold will be if they do not have an offer of affordable coverage from an employer and meet other eligibility requirements.  Other states may seek to expand coverage to levels above their existing thresholds but below 100 percent of the FPL….How the current Administration and future ones will respond to states’ interest in pursuing these various approaches is unclear.

This is very much an open question, given that HHS has not opined on the impact of the Court’s ruling – except to deny states flexibility to modify their Medicaid programs.  If HHS takes a similarly absolute “all-or-nothing” approach to the entire Medicaid expansion, CBO’s assumptions could be vastly different indeed.

Finally, as one observer noted, CBO’s score of the law’s repeal “also assumes that a controversial tax on high-cost health insurance plans goes into effect as scheduled in 2018, though critics argue Congress will act to avoid that.”  If Congress does act to avoid that tax, then the law will INCREASE the deficit – because the $111 billion in revenue from this insurance tax on the middle class (to say nothing of the additional $216 billion in various tax-related interactions) outweighs the $109 billion in supposed deficit savings CBO assumes.  It’s pretty ironic that, given candidate Obama’s “firm pledge” not to raise taxes on the middle class, the only thing keeping Obamacare from raising the deficit is a tax increase on the middle class.